DPMS Portfolio Commentary

Welcome to the first Vizion Wealth Discretionary Portfolio Management Service Update. We appreciate the last 5 months has been an extremely turbulent time for the investment markets with high inflation and increasing interest rates which when combined with major global events such as a Ukrainian invasion and further lockdown issues in China has dampened risk appetite. As part of our decision making process in managing your investments, the Vizion Wealth Investment Committee consider the natural cycle of the markets, the current economic environment and projections of various economic variables to help formulate our portfolios.

Although we are currently facing a period of downturn across diversified portfolios and most asset classes, which can naturally be anxiety inducing when reviewing portfolio performance, these downturns typically offer attractive opportunities for long term investors and fund managers. No one knows the direction of investments in the short term, although from a long-term investment perspective, valuations are looking attractive in most markets and sectors when compared against long-term historic valuations. For over 100 years, stock markets have rebounded time and time again after major falls and this one will be no different.

We are expecting the rest of 2022 to remain a turbulent journey to navigate with continually increasing inflation and interest rates, the rise in the cost of living from increased energy bills and food prices and continued supply chain issues. As we navigate through 2022, it is expected this will have a detrimental impact on consumer savings and spending which will translate to significant impact on corporate profits. Since outset (March 2022), we have been increasing our exposure to value-oriented funds which incorporate a great exposure to sectors such as Financials, Industrials, Manufacturing and Defensive sectors such as Infrastructure and Healthcare. These sectors tend to perform better during periods of downturn and increasing inflation and interest rates. With a mid-long term outlook, we remain positive around Global Equity Income with a particular focus on US Value which offers upside potential but could also act as a ‘safer’ haven in the event of recession in Europe.

To allow for the further allocation towards US/Global Equity Income, we have slightly reduced our exposure to Asian & Emerging Markets Equities which tends to underperform when interest rates are increasing due to the additional cost of US$ dominated corporate debt. This is a short-term tactical decision in the face of higher inflation and global recessionary warnings.   We appreciate that Asia is expected to undergo further structural growth over the next decade and we will continue to monitor the region closely to re-allocate when we believe market conditions are right for the region to outperform.

In the face of rising interest rates, we have also been reducing exposure from traditional fixed interest instruments such as corporate and government bonds towards alternatives, such as absolute return / hedge fund strategies, low-risk real estate investment trusts (REITs) and money market funds. Given the increasing interest rate environment, the capital value of fixed interest instruments comes under pressure as yields rise, and therefore, for now we are underweight in this asset class. By diversifying more towards alternatives, we are aiming to de-risk further while targeting better protection and improved growth potential. Within our bond exposure, we have increased credit quality and reduced bond duration to limit potential losses.

All in all, the changes to all our portfolios for Q2 are more focused on capital preservation and improving their defensive nature in what is expected to be a difficult short-term period. This being said, the portfolios are also still well positioned to benefit over the long-term, with a balanced of growth-orientated funds within all portfolios, which are now typically trading below their long-term average PE valuations. By maintaining investment in these areas, we will aim to capture growth in the long-term once the market follows its inevitable pattern.

While we anticipate an extended period of market volatility, as economic news and central bank communications continue to reach the headlines, long-term global growth predictions still remain robust and therefore it is important to focus on the longer term picture rather than short term market noise. History tells us that market falls tend to be followed by strong subsequent recovery periods which offer an opportunity not only to recover short-term losses, but also to take advantage of new opportunities to help protect and grow your wealth.

Who are Vizion Wealth?

Our approach to financial planning is simple, our clients are our number one priority and we ensure all our advice, strategies and services are tailored to the specific individual to best meet their longer term financial goals and aspirations. We understand that everyone is unique. We understand that wealth means different things to different people and each client will require a different strategy to build wealth, use and enjoy it during their lifetimes and to protect it for family and loved ones in the future.

All of us at Vizion Wealth are committed to our client’s financial success and would like to have an opportunity to review your individual wealth goals. To find out more, get in touch with us – we very much look forward to hearing from you.

The information contained in this article is intended solely for information purposes only and does not constitute advice.  While every attempt has been made to ensure that the information contained on this article has been obtained from reliable sources, Vizion Wealth is not responsible for any errors or omissions. In no event will Vizion Wealth be liable to the reader or anyone else for any decision made or action taken in reliance on the information provided in this article.

Posted by James Blackham

James particularly enjoys building close relationships with all clients and helping people identify and fulfil their long term financial goals. A highly qualified Financial Planner working towards Chartered status and is also a Pension Transfer Specialist. James is also a partner of Vizion Wealth LLP.

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