Investment update, dealing with volatility (May 2022)

So far 2022 has presented its challenges for investment returns, most developed markets in equities and fixed income have retracted from their 2021 highs.

Concerns with inflation, interest rate hikes and the tapering of central banks’ balance sheets continue to take centre stage and put pressure on investment returns. Geopolitical events between Russia and Ukraine and the recent Bank of England comments also continue to weigh on investor sentiment.

As a result, we have experienced so far a selloff in most markets for both major asset classes in 2022. It is important to stress that periods like this are part of the lifecycle of an investment journey and our models take periods like this into consideration.

In the fixed income space we are seeing yields rising to levels not seen since 2018, for example, the 10-year US government treasury is once again back above 3% (up from 1.51% at the end of 2021).

If the year ended today this would have been the worst return in history for the Bloomberg Global Aggregate Fixed Income Index with a loss of 13.44% on a total return basis.

However, performance like this is rare in the history of the index (and non-existent at year-end so far) so it should be treated as an outlier rather than normal market conditions going forward.

In the equity space, we are seeing the first correction in most developed markets since March 2020. For the S&P 500 we are seeing the longest correction in day terms since 2016, currently down 13% on the year.

These downturns, which appear concerning in the short-term, are part of investing, there have been 24 other corrections for the S&P 500 since the 2nd World War with the average drawdown of 14.3% and a duration of 133 days.

This is not to say that we are done here but times like this are not out of the ordinary.

The InvestEngine investment team continue to monitor the performance of markets on a daily basis and maintain their long-term investment philosophy. Our managed portfolios remain within their risk parameters and there have been no changes to our investment outlook at present.

We would also like to take this opportunity to highlight that all of our portfolios remain ahead of their respective benchmarks for 2022.