When investment professionals look back in 10 years’ time, will they come to see 2016 as the year when volatility increased and electorates became more and more unpredictable?
Perhaps, but despite some obvious nerves among the investment community, attempts are being made to calm the waters.
Justin Urquhart-Stewart, co- founder of investment manager 7IM, says: “Investment professionals are nervous. What the investment industry likes is for things to run in a nice, stable way. If you give them a shock, everything they tell their clients no longer applies.
“But in the longer term it will be fine. That’s not to say investments will always be good, but the longer term picture is how you create confidence with people.
“The industry can look like a rabbit in headlights, but they tend to be the younger ones. They either don’t know what to do or think they can be terribly clever and be a hedge fund manager, and buy things that are dangerous.”
The past year has been eventful. It started off with intense volatility and stock market losses due to perceived slowdown in the Chinese economy and a tumbling oil price, and then the unexpected Brexit vote happened in June, followed by the shock of Donald Trump being elected US president earlier this month.
Mr Urquhart-Stewart said: “I was at a conference recently, and professionals in the audience – even accountants – were asking: ‘Should I be selling everything and going into cash?’
“That’s a really stupid idea. As soon as you do that, you will start to lose money.
“People are very, very frightened. They were shaken by Brexit, and they were really shaken by what’s happening in America, and this gives people the perfect excuse to do nothing.”
But as with Brexit, many of the investment arena’s old hands are calling on their experience and convincing investors that it really is not that bad, and in the words of Mr Urquhart-Stewart to “fall back on some old-fashioned investment rules”.
First of all, he highlighted the “power of compounding”. This means that if one reinvests the dividends of one’s shares, the returns are exponentially much higher. Mr Urquhart-Stewart says: “Say, for example, 69 years ago, granny left you £100 and you put it into the market. Some 69 years later, you would have £9,000. The thing to remember is time in the market rather than timing the market. Over 20 years, if you took £20,000, you would have gone to £33,000. But if you missed the best 40 days – which often happen after the worst 40 days – you would have lost money, and you would not know when the best 40 days are.”
As an investment manager, Andrew Herberts of Thomas Miller Investments is surprisingly sanguine. He says that he might make a few adjustments to his clients’ portfolios, but is not gearing up for a massive shock.
He says: “It’s so difficult to predict the uncertainty. The electorate has become really unpredictable, but it’s very difficult to put together a portfolio that will genuinely be immune.” He urges adjusting portfolios slightly, so that “if we do get a pullback, there will be some properties of the portfolio that will be resilient and hold up well”.
