- The mini-budget gave UK investors an early Halloween fright
- Real incomes continue to be squeezed
- Experience counts in uncertain markets
- Fixed income fund picks for navigating an uncertain macroeconomic backdrop
Joseph Hill, Senior Investment Analyst, Hargreaves Lansdown:
“Investors could be forgiven for thinking Halloween had come early in the UK. Former Chancellor Kwasi Kwarteng’s doomed mini-budget gave investors quite the fright with policies aimed at boosting the prospects for economic growth being received badly by markets.
Concerns over how the proposed tax cuts would be paid for saw the pound fall to a record low against the dollar and a sharp fall in bond prices forced the Bank of England to step in to stave off a global financial crisis.
What other ghouls should investors be wary of this Halloween?
While a new Chancellor seems to have brought relative calm to markets, investors’ nightmares are not over. After 30 years of a relatively stable price index, inflation is back with a vengeance. Rising energy costs, constrained food supplies and global supply chain disruptions pushed inflation to a 40 year high with prices in September, 10.1% higher than a year earlier.
Even more frightening for consumers is that wages aren’t keeping pace. Average wages, not including bonuses, rose by 5.4% in the three months to August 2022. So, trick or treaters might find their budgets for this year’s fancy dress costumes that little bit more stretched. And the gloom doesn’t end there. After compromising on a DIY outfit, they might also be disappointed with the neighbours treat bounty. With confectionary prices 6.1% higher than a year earlier, the sweet bowl may well be sparser than in previous years.
How can investors navigate these frightful markets?
With so much going on from political turmoil to war in Europe, it’s difficult for investors to keep track of emerging risks and opportunities. That’s why we think it makes sense to leave this to a professional fund manager. There are some talented fund managers with a track record of evaluating the economic picture and allocating capital accordingly.
Fixed income fund picks for navigating an uncertain macroeconomic backdrop
- M&G Global Macro Bond
Fund manager Jim Leaviss starts with his ‘bigger picture’ macroeconomic outlook, forming a view on economic growth, interest rates and inflation globally. He then has the freedom to invest in different types of bonds, issued in different currencies to generate a combination of income and growth over the long term. We think experience is vital for a manager of this type of fund and Leaviss is one of the most experienced bond fund managers in the UK.
- Pyrford Global Total Return
Designed to keep pace with inflation, through a cautious mix of assets the managers of this fund focus predominately on capital preservation. While there are no guarantees, the fund has held up well this year through a difficult market. One for portfolios needing ballast, don’t expect it to keep up with rising markets.”