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What’s affecting your investments? February 2018

Investment Manager Alex Neilson explains how our team anticipated the recent market slump

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Topic: Investing

Concerns about rising inflation sent shockwaves around the investment world earlier this month.

In this video Investment Manager Alex Neilson explains what was behind the recent market movements and how Investec’s team of active managers started making adjustments to your portfolio before any of this volatility kicked-off.

Video transcription

As you may have noticed in the news, the stock market has taken a bit of knock over the last two weeks.
But the slip that spooked the markets and gave the press a lot of room for dramatic headlines was really just the result of a series of perfectly natural events in the investment world.

The domino effect all started when an employment report published on Monday showed wage growth was accelerating.

With this news, investors started to assume that, to cover the cost of these higher salaries, companies would have to increase the costs of goods and services, in other words, increase inflation.

If inflation overheated, then the Central Banks would probably have to respond by increasing interest rates faster than expected to discourage borrowing and spending and it’s this assumption that has caused the sell-off of shares.

Why? Well if interest rates rise, borrowing costs go up, curbing consumer spending and company profits which inevitably impact share prices.

Higher interest rates also mean the returns you can get from bonds increases and this makes them a more attractive investment asset.

So the end result? Hefty falls in the FTSE 100, the Dow Jones and S&P 500 and a lot of nervous investors.

But here at Investec Click & Invest we’re not too worried. Our team of active managers started making adjustments to your portfolio before any of this kicked off.

We took the decision at the start of February to increase our exposure to US government investments, the theory being that more volatile markets usually mean investors flock to safe haven assets in the dollar, and government debt. This has worked as expected in portfolios, dampening volatility in these choppy markets.

In our high risk Aggressive portfolio however, we remain invested fully in stocks. This portfolio will therefore be most affected by stock market falls – however with the building momentum in the global economy, the portfolio will be well placed to take advantage of a rebound in stock prices.

We appreciate these can be troubling times for investors but we will continue to monitor your portfolio closely during this period and keep you updated with any significant changes.

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