In recent weeks and months, markets have been inundated with a steady stream of market-moving events, ranging from the UK budget and the US election to economic indicators like inflation and employment data. Additionally, the tail end of Q3 earnings season has further influenced investor sentiment.
Throughout this period, markets have repeatedly proved how unpredictable they can be. For instance, US markets have rallied on optimism around Trump’s growth initiatives, despite the likelihood that such plans could be inflationary and lead to future rate hikes—precisely the conditions that have weighed on market performance (aside from the 'Magnificent Seven') in recent years. Similarly, individual companies like Airbnb have posted strong growth, revenue, and earnings, yet still faced share price declines because results fell short of heightened expectations.
With market movements seemingly more volatile than ever, we appreciate that new investors may be apprehensive about starting their investment journey and equally, existing investors may be uncertain as to how best to navigate the current environment.
A crucial concept in respect to smoothing out returns is diversification – essentially ensuring that you don’t have all your eggs in one basket.
Across our core investment strategies, there are a number of ways we aim to achieve this.
Global exposure
At the core of our strategies are globally diverse investments, including British stalwarts such as GSK or Diageo, US giants Microsoft and Visa, or Taiwan Semiconductor and MercadoLibre across the emerging markets. Having this blend of exposures helps to minimise the impact of localised events, whether that be elections, budgets or otherwise.
Existing investors will be acutely aware of the strength of US markets over the last 18 months and the concentration we have seen in returns. However, history shows that these types of momentum trades and sentiment-driven markets do reverse. Without knowing when the tide will turn, it is beneficial to have a foot in both camps.
In a previous article, “Looking beyond the hype”, which is still as relevant today, we discussed the valuation opportunities in other areas of the market at present.
Diversified asset classes
Secondly, we carefully balance various asset types—equities, fixed income, and other diversifiers. The allocation to each is tailored to our clients’ risk profiles, as agreed with the client at the outset. Lower-risk portfolios tend to emphasise fixed income for greater stability, while higher-risk portfolios prioritise equities, reducing bond exposure to enhance long-term growth potential. That said, with the exception of our highest-risk strategies, all portfolios—when aligned with an appropriate time horizon—maintain a diversified blend designed to smooth out short-term volatility. For instance, even our most cautious portfolios have benefited from some equity exposure, which has helped them navigate challenges like 'Trussonomics' and recent inflation rises.
Thematic investing
Finally, we ensure exposure across a range of investment sectors, or, in our case, investment themes. The aim of our thematic exposure is to focus on structural trends that have been established globally over decades. These trends—such as changing demographics, accelerating innovation, and increasing wealth—are shaping our societies, cities, and the very world around us and are very hard to derail – regardless of what is thrown our way, whether this is Trump, China trade wars or Middle East conflicts. It may seem simple, but daily activities like brushing our teeth, taking medication, streaming our favourite shows, and shopping online are activities we’re likely to continue well into the future. By choosing to invest this way, we aim to eliminate short-term local and global impacts.
Whilst we can only wish we had a crystal ball to predict how heightened political change and global tensions may change the economic and market landscape – the reality is that there is no historical economic model to help us reliably predict the outcome. Given this, diversification – through global exposure, diversified asset classes and thematic investing – becomes a vital tool for delivering consistent returns and, equally, providing downside protection across client portfolios, should volatility continue.
If you would like more information on our core investment approach or current portfolio positioning, please don’t hesitate to contact us.
