World stockmarkets have continued to be volatile this month, with the FTSE 100 falling 2.6% on 2nd July only to recover most of it losses this week. Further volatility seems likely, as the markets try to determine the outlook for the level of economic growth.
Last March saw governments around the world implementing stimulus packages which have now run their course. These same governments are now looking to get their spending under control to help them repay the debts they have created through loose fiscal policy and in bailing out their financial system.
A lot of uncertainty exists within markets right now, as governments withdraw from their artificial efforts to keep their economies flowing. Many economists doubt the private sector will be able to start generating the real output needed, to replace government stimulus, and keep the economic recovery on track. Others think the artificial stimulus (through fiscal measures and quantitative easing) has simply delayed an inevitable correction.
During periods of uncertainty, investors can protect their wealth with a high quality, diversified portfolio. Share prices in market falls can be indiscriminate with both the good and bad investments being sold as institutions and investors seek liquidity to meet their obligations. While the effect may be of concern, we recommend investors should see the volatility as a great opportunity for those fund managers who know which the good companies they wish to own are, but have never had the opportunity to buy them this cheaply. This can position a fund for future success.
Of course not all fund managers have proven they have this skill, which is why we place so much emphasis on our rating of fund managers' career performance, expressed through our star rating system and the more technical Manager Record Index (MRI)
If you do have a portfolio of quality funds, periods of market weakness can be a good opportunity to invest at lower levels. If you would like advice on how to construct a suitable portfolio, please speak to our Investment Professionals on 020 7189 9999.