Quarterly Market Update: A changing investment landscape

The last quarter of 2021 rounded off what was largely a positive year for global stock markets. The FTSE All-World share index grew almost 20% over the year. The growth was especially notable in the US, where the S&P 500 index climbed almost 30% overall.

Of course, the full picture was slightly more complicated. For example, there were differences in performance between the share prices of the world’s largest companies (such as Apple – which briefly reached $3 trillion in size at the start of the year) and so-called ‘growth’ companies, which investors tend to hold because they believe they will grow quickly in the future.

And of course, certain pockets of the market outperformed others for a variety of reasons – whether geographic, economic, or down to the uneven recovery around the world as vaccines brought the pandemic under control.

Looking ahead, there are some reasons to believe that the investment environment will shift this year and beyond. Since the COVID-19 crisis caused the world economy to stall in early 2020, central banks kept asset prices stable with low interest rates and other forms of support (such as bond purchases).

Towards the end of 2021, however, data continued to show that inflation is at high levels in many major economies. With inflation growing, many central banks have begun planning to taper down their various forms of support – and some have already started doing so. The Federal Reserve (the US central bank) generated headlines in the first trading week of 2022 as its officials weighed up the scale and timing of their planned changes. In December last year, the Bank of England raised interest rates from 0.1% to 0.25% in a move that seemed to catch the market by surprise. The European Central Bank also said it would dial down its own bond-buying programme as inflation increased on the continent.

As the investment landscape changes, I’d like to remind you of our investment beliefs. These beliefs are a framework to guide us, and ensure we continue to offer investment solutions that give you the confidence to create the future that you want.

One of our core beliefs is that we should always understand the risks within an investment and try to remove those risks we don't intend to take. We aim to mitigate any unnecessary risks through diversification. Diversification is all about having different assets that have different characteristics, doing different things at different times, and avoiding excessive concentration to any one type of investment or source of return. To give you a current example: as interest rates rise, investors are likely to need different sources of diversification than those which have worked well during periods of declining interest rates over recent years.

This is why we're adding managers to some of our existing funds to provide greater exposure to different investment styles and approaches. When carefully blended together within a fund, these multi-manager strategies provide greater diversification, helping to reduce risk and deliver smoother investment returns over the long term. We believe that with a robust, evidence-based research process supported by clear decision making, it is possible to stack the odds in your favour.

Supported by our investment beliefs, our aim is to create a rational and more diversified set of funds spread across a range of asset classes, including equities, bonds and property or other types of assets. You’re likely to see more changes in the future as we take meaningful steps to evolve our investment proposition to help you achieve financial wellbeing in a world worth living in.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations.

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