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Issue 55 - Yet Another Storm!

It seems just at the moment that whichever direction you look, there’s yet another storm to be dealt with.

Last weekend, the south of England in particular, was hit hard by the second of three storms, but the whole of the UK suffered generally.  For a couple of days, we were certainly without power and indeed, the mobile phone service failed as well and therefore, for about 36 hours, we were cut off from the outside world, which I have to say, seemed a little strange!

Thankfully, we only had to drive about 10 miles into the local town to find some mobile service and Internet connection, so we weren’t quite marooned with no options.

Although I appreciate there were a few lives lost and quite a bit of property and tree damage done, thankfully, it was nowhere near as extensive as the great storm of 1987.  That of course was the hurricane that never was!

Hopefully, as the Met office has commented, that was indeed a one in 30 year’s experience and we won’t see the like of further storms this winter.  That having been said, I understand that the north of England and Scotland may be in line for some more bad weather over the weekend.

It’s not just storms of the weather variety that we are witnessing at the moment, but also on the geopolitical scene and knock on effect in oil prices and equity markets that are currently quite prevalent.

As you know, I don’t like to get drawn on political comments, but it does seem a tragedy that lessons from history may not have been learned and it is so difficult to try to work out what the ultimate objectives of Russia might be with regard to their intentions towards Ukraine.

It would seem that western Governments are fairly united in their approach in condemning the position being taken by Russia and although sanctions are being rolled out as we speak, one does wonder what teeth these really have and indeed, you would expect President Putin to have played quite a number of ‘what if scenarios’ and therefore, I doubt that any of the sanctions come as a surprise to him.

The one exception to that could be the stance that the German Chancellor, Olaf Scholz, has taken in halting approval of the Nord Stream 2 gas pipeline, which is due to supply gas from Russia to Germany.

How all this will play out and be resolved we will just have to wait and see, but let’s just hope it’s not too late for diplomacy to prevail, although just now, that is looking unlikely.

Just before moving away from that subject, I was absolutely amazed to see comments from ex-President Donald Trump yesterday, where he described Vladimir Putin’s actions as genius and in referring to the suggestion that Russia would be sending a peace keeping force – Trump said, ‘how smart is that – that’s the strongest peace force and we could use that on our southern border’.

I suppose in reality, we should not be surprised by anything we hear from Mr Trump!

Turning our thoughts to investments and the markets, as I have often commented, markets don’t like uncertainty and will often react negatively to uncertain times.  That having been said, the market reactions so far to the Russia/Ukraine situation this week has been largely benign.  It’s true that on Monday markets opened a bit jittery, but they soon recovered and at the time of writing, are largely in positive territory.

That doesn’t mean to say however that there won’t be market reaction to the unfolding situation and in particular, with the oil price being pushed higher, this is likely to add to market volatility in the short term.

Just recently, I’ve had a number of conversations with clients about market performance and people often look to the FTSE 100 Index as a benchmark for comparison and yet in reality, this is a poor guide to use, because most people are largely not invested in the Companies contained in that Index.

In reality, investment portfolios are more likely to incorporate shares from FTSE 250 Index Companies and in the US, Companies appearing in the Dow Jones Index or the NASDAQ       .  The following table summarises the performance of each of these Indices on a year-to-date basis and looks at their relative performance for 2021.

As you can see from the table, if you look at year to date, the FTSE 100 Index shows a much more positive picture that any of the other Indices.  This is because the Companies in the 100 Share Index have particularly benefitted from short term market influences, whereas the wider Stock Market has had the opposite impact.

However, when you look at the performance for 2021, you get a rather different picture.

When you further consider the NASDAQ, which is made up of many technology Companies, and look at the performance of that over the last 5 years, this has actually increased 128% over that period.

The conclusion to draw from all of this is that it is actually a strong lesson in why one should not look at short term performance and draw conclusions, but rather to consider the bigger picture and the longer term.

Clearly looking in the rear-view mirror is a perfect science, whereas looking out the front to the future, is less certain, but in this regard, the fund management groups that we are working with, all have their analysts and research departments that are continually monitoring all of these aspects and a comment that we often hear from them is that whilst nobody likes short term volatility, it is volatility that creates opportunity and is one of the key criteria in helping their medium to longer term results.

I hope therefore that these thoughts might be of use and some comfort, particularly if you are feeling a little concerned about all that is presently going on.

As is often quoted, a comment from Warren Buffet, who is a significant figure in the global investment arena, who says ‘it is better to have time in the market than to try to time the market’ and by this he means that you should not take knee jerk reactions to short term movements, but rather let markets do what they do, the cycle will roll on and let them ride the storm.

As ever, we keep close contact with the fund management groups we are working with and we’re happy to answer any questions that you may have.

Above all else, take care and stay safe and we will keep in touch.

Best wishes from all at RAFP

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