Communicating with clients has been a big focus as markets enter bear territory, the head of UK wholesale at M&G Investments has said.
Speaking to FTAdviser, Alex Matcham said for several years clients have enjoyed strong investment returns, meaning the company’s quarterly results have been relatively straightforward.
“This year is the first in many where the outcome is materially different,” he said.
The re-pricing of bonds specifically is one of the areas on clients’ minds at the moment, he explained.
“That’s where we’re talking to clients the most…what are the ramifications for investments and financial strategies in general in a higher inflationary and interest rate environment.
“There are big existential questions around what a low risk asset looks like.”
However, a problem for IFAs is that clients tend to look at absolute returns, rather than relative returns, Matcham said.
This means although a fund or portfolio may have done well compared to the rest of the market, clients may still be focusing on the fact that it has lost value since the start of the year, for example.
“Through this period of time, for us, communicating with the market around fixed income in particular was one of the biggest areas [of focus]," Matcham said.
Downside protection focus
Global markets have seen huge volatility since the start of the year, as the decade of low interest rates and cheap debt came to an end.
Inflation in developed markets soared, prompting swift hikes of the base rate of interest by central banks, and a subsequent significant re-pricing of assets in almost all classes.
UK wealth portfolios have suffered as a result, losing a third of their value on average, according to the Financial Times.
M&G has been focussing on funds that can provide investors with a greater downside protection than other equivalents, and Matcham highlighted infrastructure exposure, total return funds, and shorter dated or inflation-linked bond funds as areas that could do well.
Infrastructure exposure in particular has been attractive, he said, through both equities and REITs, across investments like university housing, the national grid and even internet and data storage operators.
“[These assets] are a bit more defensive in nature in terms of their cash flows, and their equity tends to have held up better.”
Matcham said one of the outcomes of all the volatility seen in the markets has been a move into cash, and a slowdown in market flows.
UK investors pulled a near-record £7.6bn from funds in September, according to the Investment association
“Your average client [will be] less willing to put money into their investment portfolio when they are worried about paying heating bills.
