Investment Line is a regular investment bulletin produced by Mattioli Woods plc. The communication provides an update on funds, highlights some of the areas we are focusing on, and shares our thoughts on the issues of the day.
Markets remain pretty settled, but there is plenty happening to cause some pause for thought among investors. The Indian variant of Covid-19 has been causing some serious concern both in the UK and elsewhere as the possibility of delays in reopening societies and economies is almost unbearable to think about. It appears that the vaccines are largely protective against the variant, but there will be others and the path to normalisation is likely to be patchy despite many markets having moved quickly to price in a speedy recovery. Europe’s slow progress has been well documented, but there are signs of the continent now shifting into gear, which should provide a further boost for the global economy. The US meanwhile should record an impressive growth rate this year despite some slightly disappointing unemployment numbers of late.
The other vexing issue at the moment is that of inflation. There is mounting evidence from multiple sources (whether it be US business expectations or China factory gate prices) that inflation could become a material threat in the not-too-distant future, yet the Federal Reserve continues to believe that it will be a transitory phenomenon. The spending plans of the Biden administration are generous to say the least and although they may not be implemented in full, it is difficult to see how such direct expenditure in the economy is not going to provide some upward pressure on general prices. In truth though, the debate is pretty balanced, but therein lies its relevance – no one was really concerned about inflation pre-pandemic, so this shift represents a material change in itself. We are not yet embracing the inflationary thesis but do have some protection if it transpires, with substantial exposure to quality equity, to gold and to real assets. Clearly there would need to be some additional thinking around fixed income exposure in portfolios under an inflationary scenario and we are already discussing what any changes might look like.
Of course, if we experience disappointment on the pace of economic growth combined with inflationary pressures, this will have a significant impact across markets – it has a name: stagflation. For now, that is not our base case and the environment remains one favourable for investors who are seeking decent returns but in a measured way.
We have steered well clear of the Bitcoin hysteria, unable to get comfortable with an ‘investment’ displaying such high levels of volatility, among other things. Cryptocurrencies are under pressure at the moment and have become highly correlated with risky equities. The degree of volatility makes it an unsuitable replacement for investments such as gold when it comes to being a diversifier and offering something different in portfolios. Clearly some have done well from speculating in this new area, but the recent falls and doubts over not only the environmental complications of the investments but also potential government intervention (see China’s recent moves) may have changed the outlook. When we seek alternative ideas for portfolios, we are certainly looking for something very different from a highly speculative vehicle with a still uncertain future.
Investment Line is written and edited by members of the Mattioli Woods Group investment committee and is for information purposes. It is not intended to be an invitation to buy, or act upon the comments made, and all/any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances. The value of investments and the income from them can go down as well as up, and you may not get back the amount invested. Past performance is not a guide to future returns.
Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.