Investments

Anyone who has held investments through the last five years will have encountered uncomfortable periods when market volatility has increased. The outbreak of Covid-19 at the start of the decade, the Russian invasion of Ukraine, the ill-fated Mini-Budget of 2022 that led to the downfall of Liz Truss, and more recently the global tariff shock and increased instability in the Middle East, are all recent examples of global events that have led markets to retreat in the short-term.

Given how markets have traditionally reacted to global events over recent years, some investors have been a little puzzled by the calm market conditions seen over recent weeks. The CBOE VIX index, which measures the volatility of the S&P500 index of US stocks, has barely suggested any sign of increased risk, despite the US involvement in the Israel-Iran conflict, which has the potential to lead to a regional war, and have wider implications for the global economic outlook.

Reasons behind the muted reaction

A major reason for the sanguine response to the escalation in the Middle East has been the suggestion that US involvement will be limited. We suspect market reaction would be different should the US be drawn into a wider conflict in the region. In previous periods of unrest in the Gulf, Oil prices have been driven rapidly higher, as fears grow over supply constraints, and indeed, this was also the case following the Russian invasion of Ukraine. Whilst the bombing of Iranian nuclear facilities did cause a minor spike in the price of Brent Crude, the reaction has been muted given that many feel that tensions could ultimately ease. Should oil prices remain around current levels, the potential for damage to the global economy is limited; however, actions, such as blocking the Straits of Hormuz, would undoubtedly see the price of oil soar.

Tariffs remain a threat

The instability in the Middle East is not the only current global factor that markets are seemingly taking in their stride. Away from global conflict, the tariff issue remains unresolved. Markets fell sharply immediately after the Liberation Day announcement on 2^nd April and began to rebound once the US administration announced a 90-day pause a week later.

The trade deal struck with the UK recently is the first of what the US hope will be many that will be completed; however, time is running out before July 9^th, when the current 90-day pause will end, and this poses the question, what happens next? Could the 90-day pause be extended, to allow additional time for deals to be struck? Will challenges questioning the legal basis of tariffs be successful? Or will Trump simply roll the dice again and reimpose the original tariff levels on trading partners? Markets will undoubtedly gain clarity in the coming weeks; however, given Trump’s unpredictability, the current market optimism runs the risk of discounting the potential for further turbulence when the 90 days expire.

Focus on fundamentals

Whilst markets grapple with geopolitical factors, other risks remain which could derail the current positive mood. We will shortly be entering the next quarterly reporting season for US equities, and markets will once again focus on the quality of US earnings, which may have been impacted by uncertainty over tariffs and weaker consumer confidence. Given the current market valuations, disappointing earnings reports could leave the valuations of some leading companies exposed.

The actions of the Federal Reserve could also pose a risk to the current positivity in global equities. Despite Trump’s regular demands that Fed chairman Jerome Powell starts to cut US base rates, the Federal Reserve have so far stayed resolute, highlighting the potential that tariffs could push inflation higher over coming months. Economists are also split as to whether any inflationary pressure would be short-lived, as companies readjust to tariff levels, or more persistent. Markets currently expect the Fed to cut rates twice this year, and any deviation from this path could lead to market disappointment.

Don’t discount market momentum

One theory that tries to explain the perceived complacency is that investment markets are simply growing increasingly numb to the seemingly endless stream of geopolitical noise and choosing to look for positive signs to support the current rally.

It is easy to build a case that suggests that current market valuations may become challenging as geopolitical factors weigh; however, market momentum remains strong, and further upside is possible in the short-term, if corporate earnings beat estimates and the Federal Reserve begin to ease the cost of borrowing. In short, markets could continue to ignore the risks and focus on positive factors that support valuations for some time to come.

As suggested in the famous quote attributed to John Maynard Keynes, “markets can remain irrational longer than you can remain solvent”. This may be an important mantra as we head through the coming weeks, if investment markets continue their upward momentum.

What action should investors take

Diversification is a key component of sound investment strategy in all market conditions. Holding a diversified portfolio can ensure that you participate in periods when markets are on an upward trajectory, but also hold other asset classes, which may be more predictable, to protect the portfolio when volatility increases and markets retreat. For example, holding a position in fixed interest securities, such as corporate and government bonds, may act as a foil to global equities exposure, and help reduce overall portfolio risk.

Given the current conditions, and potential challenges that await, investors should look to review their current portfolio, to ensure that the asset allocation not only matches their needs and objectives, but changes in market conditions. Our experienced advisers can undertake a comprehensive analysis of your existing investments and provide an unbiased opinion on whether changes should be made. Speak to one of the team to discuss your existing portfolio.

Changing travel money for holidays abroad may be the only direct interaction many will have with currency exchange rates on a day-to-day basis; however, exchange rates between currencies have far reaching implications for investment markets, the prospects for the global economy and our financial prosperity.

How currency movements affect performance

When investing in overseas assets, currency fluctuations can significantly affect your investment returns. In addition, domestic investors are also impacted by exchange rate movements due to the global nature of supply chains and revenue streams.

One of the most direct ways exchange rates influence investments is through their effect on returns when converting foreign investments back into the investor’s home currency. Take the following example of a direct purchase of Microsoft Inc Common Stock. At the time of writing each Microsoft share would set you back $477 USD, which at the exchange rate of 1.35 US Dollars to the British Pound, would be £354. Let us assume the share price remains unchanged a year later, at $477 USD; however, over the course of the year, the US Dollar strengthens against the Pound, moving the exchange rate from 1.35 to 1.25 US Dollars to the Pound. In Sterling terms, the value of the investment has increased to £381, despite the share price remaining unchanged. Whilst the example demonstrates a positive currency movement, should the US Dollar have weakened over the course of the year, the investment would have lost money when converted back to Sterling.

Exchange rates affect investments in multinational companies listed in an investor’s home country; however, we live in a global marketplace, and multi-national firms generate revenue from multiple currencies. Continuing to use Microsoft as an example, the company earns a substantial proportion of its revenue from abroad. If the US dollar shows strength against other currencies, this can reduce the value of the overseas earnings generated by Microsoft when they are converted back into dollars, which can affect profitability. Conversely, if the US dollar weakened against other currencies, this can help boost Microsoft’s earnings, which would potentially lead to an upward rating in the value of the company.

The factors behind currency movements

Exchange rates are influenced by a range of factors, although two of the most important considerations are prevailing and expected interest rates and levels of inflation. A country with a higher interest rate than its’ peers may attract more foreign capital, increasing demand for their currency. This can make investments in those countries more attractive. Higher levels of inflation have the opposite effect, as it can erode the real value of currency and deter investment.

Government policy decisions can also have an impact on currency stability. Elevated levels of Government debt can cause currency values to fall as investors become wary of a nation’s financial stability. For example, the ill-fated Mini Budget of 2022, saw a run on the Pound, and caused a sharp drop in the value of Sterling against the Dollar, so much so that the two currencies briefly came close to parity. Likewise, the Brexit vote in 2016 had a severe impact on the strength of the Pound at the time, and in turn damaged investor confidence.

“Safe haven” currencies?

The strength or otherwise of the US Dollar plays a pivotal role in the outlook for the global economy and the price we pay for goods in the UK. Commodities such as oil, gold, and copper are priced in U.S. dollars, and therefore movement in the US currency has a direct impact on the cost of these commodities locally and further influences the cost of goods that rely on these raw materials.

The US Dollar has long been considered a pillar of strength and a “safe haven” currency, which investors tend to flock to in times of crisis. This year has seen a change of direction, partly driven by the trade tariffs announced by President Trump in April. This caused the Dollar to slide against a basket of major currencies, as investors digested the impact of trade barriers imposed by the US. Recent events in the Middle East, including the deepening conflict between Israel and Iran, would ordinarily have led to the Dollar seeing inflows. In recent trading sessions, however, the Dollar Index has barely moved, adding further weight behind the suggestion that the Dollar is beginning to lose its “safe haven” status.

To hedge or not?

Diversifying a portfolio globally is a powerful way of spreading risk across multiple geographic regions. However, this introduces the challenge of managing currency exposure. Truly global investment funds, which invest in several regions and underlying currencies, can minimise the impact of currency movements on fund performance, as different currency positions held function as a hedge against each other. In addition, some investment funds actively undertake hedging strategies to reduce the impact of currency risk. This is particularly the case for fixed income investments, where fund managers are seeking income and stability without the added volatility of currency movements. Whilst hedging can provide downside protection from adverse currency movements, it may also limit potential gains, and therefore the decision to hedge currency risk will be determined by the composition and objectives of the investment fund in question.

Another layer of complexity

When choosing an investment strategy, currency risk adds another layer to the decision-making process and is a risk that some investors choose to ignore. This can, however, lead to underperformance, and increased volatility, particularly in today’s global markets. Our experienced advisers can review existing investment portfolios and assess the level of currency risk to which you are exposed. Speak to one of the team to start a conversation.

We previously cast the spotlight on Japanese Equities late in 2023, at a time when the region was seeing a sharp rally in values, which extended through to the start of this year. Recent performance has, however, been disappointing, as investors become wary of the impact of tariffs imposed by the US. Despite these challenges, Japan remains an interesting opportunity for investors.

New highs in 2024

Over the last two decades, Japanese equities have often been a source of disappointment for investors, promising much, but delivering sub-par returns. This is in stark contrast to the boom days of the 1980s, when Japanese equities were caught in a bubble of optimism that extended across other aspects of the Japanese economy, such as real estate. Partly due to lax regulation, asset prices continued to climb until the bubble burst in the early 1990s. It took 34 years for the Nikkei 225 index of leading shares to reclaim the level reached in 1989, when the index climbed to a record high in July 2024.

The rationale behind the strong performance in Japan during 2023 and 2024 has little to do with speculation. After grappling with deflation for many years, Japan’s inflation rate has been positive since the end of 2022, which has helped the Japanese economy to normalise. With stable levels of inflation, wages have increased, improving the outlook for domestic demand. Interest rates are now also positive, albeit at just 0.5%, after many years where the base lending rate was negative.

Japanese companies have also evolved over recent years, improving their corporate governance and engagement with shareholders. As a result, Japanese companies have become more “westernised” when delivering shareholder value, by increasing dividends and using excess capital to arrange share buybacks. Each of these measures has the potential to improve return on capital and enhance the attractiveness of Japanese equities to investors.

Volatility remains

Using valuation metrics, Japanese equities look inexpensive compared to global counterparts. For example, they stand at a sizeable discount to the valuation of US equities. It is, however, worth noting that Japanese equities are not as cheap as they were two years ago, prior to the upswing in values.

Japanese equity markets can also be volatile. Investors in Japan suffered a temporary setback in August last year when a sharp rally in the value of the Japanese Yen against the Dollar triggered the unwinding of the so-called “carry trade”. This is where investors take advantage of the low interest rates in Japan to borrow Yen and use these funds to invest in assets with higher potential returns. When the Yen rose unexpectedly, this led investors to unwind their positions, which led to a short but painful fall in the Nikkei 225 index. Whilst the index had recovered the lost ground within four weeks, it served as a timely reminder of the importance of considering the outlook for the Japanese currency in conjunction with the prospects for equity markets.

Tariff threat

Japan is seen to be one of the nations most at threat from the imposition of tariffs by the US administration. Japan is a major exporter, and the 24% tariff announced on 2^nd April by President Trump was certainly not welcome. Despite the pause on tariffs announced a week later, investors remain concerned that tariffs could derail the positive outlook, and result in weaker economic growth.

The US accounts for around 20% of Japan’s exports, and any lasting trade barrier could prove troublesome, particularly for industries such as automotive, given the scale of exports of Japanese cars to the US market.

It is also important to consider the “knock-on” effects of tariffs imposed on other nations which trade with Japan. Lasting tariffs on major trading partners, such as China, could lead to a hike in the cost of parts and components used by Japanese industry.

Whilst tariffs continue to pose a threat to the outlook for Japanese exporters, and the wider economy, Japan enjoys good relations with the US and of the nations looking to strike a deal with President Trump, a good argument can be made that Japan are in a better position than many others to achieve a reasonable outcome.

Largely due to the tariff announcements, the Nikkei 225 fell by 8.2% over the first four months of 2025, compared to the index level at the start of the year, although valuations have subsequently rebounded strongly from their low point. Market valuations have, therefore, already discounted some of the concern over tariffs, and a positive outcome from trade negotiations for Japan, could aid further recovery. On the other hand, a reimposition of the punitive rate announced by President Trump on Liberation Day could potentially lead to further underperformance.

The investment outlook

Using valuation metrics, and considering the pace of change within Japanese companies, Japanese equities appear attractive; however, risks do remain, and whilst the regulatory reforms may prove helpful in the long term, the most immediate threat is posed by tariffs on global trade. For this reason, we recommend allocations to Japan are held as part of a diversified investment portfolio, which enables investment risk to be controlled. By allocating funds to different regions, where investment performance does not necessarily correlate, and to different asset classes, such as Government and Corporate Bonds and Alternative Investments, volatility and risk can be reduced.

Speak to one of our experienced financial planners to discuss the asset allocation of your portfolio.

Ethical investment strategies have seen significant growth over recent years, as more investors aim to align investments with their own values. According to data from Morningstar, total assets in global sustainable funds have climbed to US$3.2 trillion at the end of 2024, almost double the total assets held in similar funds at the end of 2020.

Whilst returns from socially responsible investment strategies have been strong over the longer term, recent performance has lagged unfiltered investment approaches. This underperformance is one reason for the slowing demand for socially responsible strategies.

Playing catch-up

Those who wish to invest with an ethical stance have enjoyed returns over the medium and long term which have closely matched the returns from wider markets. Over recent months, however, this has not been the case. After seeing strong growth in 2024, largely due to the allocation to technology within ethical funds, socially responsible investment strategies have lagged more inclusive investment approaches since the start of the year. The chart below shows the widening gap between the MSCI World Index (shown in blue), and the MSCI World SRI Index, which excludes companies whose products have negative social or environmental impacts (shown in red), over the last 12 months.

The disparity in performance is the first significant divergence seen between the two MSCI indices over the last five years and clearly demonstrates the additional “cost” that ethical investors are currently paying to invest in line with their values.

MSCI World vs MSCI World SRI indices, Total Return in GBP over 12 months. Source FE Analytics April 2025

The underperformance can be attributed to the sector rotation we have seen over the last three months, due to global events. The decisions taken by European nations to increase defence spending has seen the Aerospace and Defence sectors grow strongly, as investors anticipate the potential profits that could be generated from growing order books. Socially responsible strategies are likely to hold a very limited exposure to these sectors.

Energy stocks have also performed well in the first quarter of 2025, producing the strongest performance of any sector within the S&P500 index, spurred on by a shift in policy from the US administration towards oil and gas production. This contrasts with the performance of renewables related stocks over the same period.

The underperformance of Technology has also been a major detractor that has hindered ethical investment strategies. After an extended period of growth, investor confidence in the major US Tech players has cooled due to concerns over the impact of tariffs and Chinese advances in Artificial Intelligence (AI).

Finally, the new Trump administration has clearly set out plans that fail to align with the green agenda and climate goals. This has led investors to question whether the change of direction could lead to continued underperformance.

Strong headwinds

The weaker returns achieved from ethical investments over recent months is likely to be a key reason behind the significant outflows seen from ethical investment funds over the last quarter. According to Morningstar research, more money was withdrawn from ethical strategies globally than invested, and new fund launches also fell to their lowest point in three years, reflecting the weaker investor demand.

Recent performance is not, however, the only reason ethical investments are facing strong headwinds in the current market conditions. Tighter regulation of sustainable investments has seen Europe, and the UK introduce new regulatory frameworks, designed to reduce the potential for “greenwashing”, i.e. misleading marketing that makes an exaggerated or false claim about the environmental impact of an investment.

In the UK, the Sustainability Disclosure Requirements (SDR) came into force last year, which encouraged funds to apply for a sustainable label, and for funds that choose not to apply for a label, to tighten up naming conventions. Take-up of the new labels has been slow, with just 94 funds adopting one of the SDR sustainability labels by April 2025. This is due to the rigorous scrutiny of the investment approach by regulators. As a result, a much greater number of funds have chosen to change name, more closely reflecting the strategy of the fund, or have decided to drop a sustainable investment approach altogether.

Whilst the slowdown in fund launches is a concern to asset managers, there remains a wide choice of both active and passive investment funds available for those who wish to invest ethically. Sustained weaker performance and diminishing investor appetite could, however, lead some fund managers to ditch their ethical stance, or in the case of smaller funds, merge or close investment strategies.

Where next for Ethical investments?

Socially responsible investment has taken significant leaps forward over recent years in terms of popularity and the availability of both actively managed and index tracking funds. Whilst ethical investors have seen returns closely match mainstream investment strategies over the longer term, the recent underperformance will no doubt be of concern to some who prefer to invest ethically. This could potentially have wider implications for continued growth in the ethical investment space.

At FAS, we have two distinct approaches to cater for those who wish to incorporate ethical considerations into their investment approach. Through CDI, our discretionary managed portfolio service, we offer two strategies that take a common-sense approach to socially responsible investment, that are designed to meet suitable screening criteria (which limits exposure to areas such as fossil fuels, gambling, animal testing and weaponry) whilst being as inclusive as possible.

We also appreciate some investors would prefer a more focused ethical investment approach. Here, we can build bespoke advisory investment portfolios, using rigorous quantitative screening processes and active engagement with leading fund managers, to meet a client’s ethical preferences.

Speak to one of our experienced financial planners to discuss existing investments you hold, or if you wish to invest in a socially responsible manner.

Investment market sentiment has been fragile since the “Liberation Day” announcements by President Trump on 2^nd April. The imposition of tariffs by the US, and retaliatory measures taken by trading partners, threatens to change the dynamics of global trade and the outlook for the global economy. Market volatility has increased significantly, as investors try to understand the implications for equities markets. In short, it has been an uncomfortable time to be invested in global equities.

In times when market volatility spikes, it is important to remain focused on the long-term trend, and to try and avoid taking short-term decisions that could prove detrimental to your financial well-being. History tells us that the initial knee-jerk reaction to global events, such as those invoked by the US administration currently, are often short lived. This may be even more pertinent to the current tariff-induced volatility, where policy decisions taken by the Trump administration reverse quickly and lead to a rapid rebound in stock values.

Bumps in the road are more common than you might think

It is important to recognise that periods of high market volatility are commonplace when we look back over recent history. The chart below shows the maximum drawdown – i.e. the largest move from peak to trough – in the S&P500 index of leading US shares, in each of the last 20 calendar years, from 2005 to 2024. As you can see from the chart, maximum drawdowns of more than 10% have occurred in seven of the last 20 years.

There have been specific factors behind each of the major drawdowns of the last two decades. The “Great Financial Crisis” of 2008-9 was the longest and most painful downturn of recent times. Caused by the failure of US lenders and the bursting of a US housing bubble, the fallout caused a global recession in 2009. Investors who bought the S&P500 index just before the crisis had to wait almost three years for the index level to rise above their purchase price.

The outbreak of the Covid-19 pandemic created the largest global economic crisis for a generation, as lockdowns caused significant damage to public finances and global commerce.

Investors had nowhere to hide during the early stages of the pandemic, with stock markets around the World moving rapidly lower during March and April 2020. The S&P500 index fell by 29% to the low point on 23^rd March 2020, but had recovered the lost ground just four months later.

The Russian invasion of Ukraine in February 2022 led global markets lower, as inflationary pressure rapidly increased and caused investors to re-think economic projections. Despite reacting calmly to the initial outbreak of hostilities, the S&P500 index of leading US stocks moved decisively lower a few weeks later and took just over one year to recover to a higher level than at the start of the Russian invasion.

More historic evidence

Each of the market events listed above caused a short-term re-pricing of risk assets; however, looking back through recent history provides clear evidence that investor pain following a global event is relatively short-lived. Despite the numerous temporary setbacks of the last two decades, the S&P500 index has risen by over 400% since 2005, significantly outstripping returns from other asset classes.

The need to stay invested is supported by historic data over an even longer period. The Barclays Equity Gilt Study has compiled data over more than 130 years and shows the probability of equities providing better returns than those available on cash, over a two-year investment period, is 70%. When a longer time horizon of 10 years is considered, the probability increases to over 90%. Such evidence, gleaned over an extended period, further supports the need to stay invested through periods of uncertainty.

Is this time different?

In some respects, the current bout of market turmoil is different to recent precedents, as much of the volatility has been caused by the policy decisions of the US administration. As we suspected, Trump’s actions may well be short-lived. Countries are highly likely to negotiate deals with the US administration, dampening the direct impact of tariffs. A baseline 10% tariff will cause little in the way of lasting damage to the global economy. Nations may take the imposition of tariffs as an opportunity to change trading habits to form new trading alliances to circumvent the tariff charges. Finally, Trump’s actions are not without consequences, as demonstrated by the weakness in US Treasury Bond market, and concern amongst Republican party members.

Trying to tactically move to cash, to avoid the downturn, or selling out temporarily in the hope of buying investments back at a cheaper price may sound an attractive proposition; however, such decisions are rarely successful and rely more on luck than judgement, as you may find that markets have already moved higher when you look to re-enter markets, leading to a worse outcome than would be the case by staying invested. This is particularly the case when considering the current volatility, as demonstrated by the initial market reaction to the climb down by the Trump administration.

Keep the long-term view in mind

It is important to keep your longer-term objectives in mind when dealing with turbulent markets. Equity markets are inherently volatile, and from time to time, global events push risk levels higher. Of course, we cannot predict the future, but we can learn lessons from the market’s reaction to past events.

Engaging with an independent financial adviser during periods of volatility can prove invaluable. Our advisers are experienced and can help provide reassurance during periods of market turbulence and review your personal arrangements to provide peace of mind in challenging markets. Speak to one of our friendly team to start a conversation.

One of the simplest ways of investing for the longer term without committing a lump sum is to regularly invest over a period of time. In fact, many of us do this without thinking, as employer and employee contributions are paid into personal pension plans on a monthly basis via payroll.

Each monthly contribution buys units in an investment fund or strategy, with the quantity of units received from each contribution based on the prevailing price of the selected fund at the time of investment. Since fund prices fluctuate over time, the number of units acquired each month varies accordingly. When markets are performing well, fund prices are generally higher, resulting in fewer units being purchased with each contribution. Conversely, during market downturns, lower fund prices allow investors to buy more units with the same amount of money.

A regular investment approach benefits from a theory known as “Pound Cost Averaging”, which helps smooth out market fluctuations over time. By undertaking regular investment, the purchase price paid will vary from month to month leading to an average entry point over the longer term. This helps smooth out the volatility which is inherent in global equity markets.

Investing regularly can help remove the emotional aspect of the decision on when to invest, which can be particularly helpful during periods when market volatility and risk are elevated. For a long-term investor, the timing of market entry can be less relevant, as investment returns over an extended period are largely dictated by the amount of time an investment is held; however, making the decision to invest in a market downturn can be challenging, particularly for investors who have not experienced such conditions previously.

Regular investment can be a very sensible way of building wealth over the long term. Saving a set amount each month promotes financial discipline and if funds are collected automatically, as is the case with pension contributions, the commitment is made before the funds reach your bank account. The same approach can, however, be used to regularly invest for other financial targets, such as building a sum of money to help children and grandchildren through higher education, or towards a deposit for their first home.

For those without the funds to make a lump sum investment, regular investment into a plan can improve accessibility to investment markets. Most investment plans offer the ability to accept regular savings, which can usually be set up via a direct bank payment each month. Whilst this automates the investment process, it is important to remember that the savings plan can be adapted to reflect changes in circumstances. For example, the amount saved each month could increase as funds allow, or contributions could be temporarily suspended if funds are needed for other financial commitments.

Regular investment with a lump sum

While regular investing is an effective way to build wealth gradually, the same approach can be adopted for those with a lump sum available for investment. Conventional investment wisdom suggests that the longer an investment remains in the market, the greater the potential for growth. A rational investor might, therefore, opt to invest a lump sum immediately to maximize market exposure and potential returns. Historical data supports this strategy, particularly during stable or rising markets.

While investing a lump sum immediately may be beneficial in a rising market, in periods when market volatility is elevated, adopting a regular investment approach may be beneficial. This process is known as “phasing” and divides the lump sum investment into smaller portions which are invested at regular intervals over a set period, such as three, six, or twelve months.

As demonstrated in the example below, an investor with a lump sum of £150,000 to invest could choose to allocate £25,000 per month over six months instead of investing the entire amount upfront. The first payment of £25,000 is made in month one, with the balance of £125,000 being held on cash deposit. Each consecutive month, a further £25,000 is invested until the full investment has been made.

If markets decline during this period (as is the case in the first three months of the example) each investment purchases a greater number of units at lower prices, ultimately enhancing the overall investment position; however, if markets rise steadily, phased investing could lead to fewer units being purchased over time, resulting in a lower return than if the funds are invested immediately. Whilst this would place the investor in a worst position than if the investment was made in one tranche, it would, however, reduce the risk of making the full investment in a single transaction.

Getting the right advice

The decision to phase an investment needs careful consideration of the outlook for investment markets, time horizon for investment, and needs and objectives of the investor. For example, an investor seeking income from an investment may well have to contend with lower natural income in the early stages if an investment is phased, as only a proportion of the investment is committed to the chosen strategy.

Independent financial advice can add significant value in reaching this decision. At FAS, we tailor investment strategies to each client’s unique situation, considering both lump sum and phased approaches where appropriate. If you are looking to establish a regular savings plan, or arranging a lump sum investment, speak to our experienced advisers to discuss the options in more detail.

Amidst an avalanche of news flow over recent weeks, investors are trying to understand the implications of events in the White House in respect of the Russian-Ukraine conflict, and imposition of tariffs by the Trump administration. It is, therefore, not surprising that market volatility has increased. At times such as these, we feel it is important to look beyond the noise, and focus on quantifiable, fundamental factors.

Cutting through the noise

Firstly, it is sensible to put the recent market performance in context. It is important to bear in mind that investment markets have enjoyed an extended period of positive returns and relative calm since October 2023. The only significant spike in volatility over the last 18 months was the brief market hiccup when the Yen carry trade began to unwind in August 2024. The graph below shows the CBOE VIX index, which is a measure of volatility in US markets, and often known as the “fear index”. Whilst volatility is elevated, it remains some way below the levels seen in August 2024 and the early part of this year.

The calm incremental returns seen over the last eighteen months represent a long period of market stability, and increased market volatility is expected as we continue through 2025. Volatility is, however, not only an inevitable element of the investment process – it is also healthy. For example, overvalued stocks may be re-rated during periods of volatility, leading to more attractive valuations and greater investment opportunities.

Factors to consider

Investors are weighing up a range of factors that are exerting an influence on market direction currently. Greater uncertainty is apparent, although there are reasons why investors should remain confident about the medium-term outlook.

The imposition of trade tariffs by the White House may represent a bigger threat to global growth than the geopolitical wranglings between US, Ukraine and Russia. There is, however, some question over how long tariffs would be imposed for, which could limit the damage they could inflict. Any trade barrier is unhelpful, and tariffs imposed for an extended period are likely to hamper global growth, which would extend to countries that are indirectly affected. Tariffs are also inflationary, as prices are driven higher, and consumer confidence may also be affected. Likewise, businesses may well curb expansion plans in this environment.

Broad tariffs have so far been imposed on Canada and Mexico, and specific tariffs on commodities such as steel and aluminium have been introduced over recent weeks. There has already been some pullback from the Trump administration, which introduces further uncertainty over the likely damage tariffs could cause and only adds to the volatility.

US corporate earnings remain strong, and we feel this supports a positive medium-term view. Fourth quarter company earnings in the US have largely exceeded expectations, although companies from a range of sectors have warned that the immediate outlook is less positive.

The broadening of the market rally over recent months can also be viewed as a positive signal. Technology stocks were the spearhead for the growth in the US, which widened the performance gap between growth companies and value stocks last year. This gap has now narrowed, with investors turning their focus to other sectors, with financials, energy and consumer staples outperforming, and defence stocks jumping on the likelihood of increased government spending.

Investors showed considerable confidence throughout 2024, although this is likely to be tested in the short term. The market falls before Christmas, and again in January following the announcement of DeepSeek (the Chinese AI competitor), saw investors buy back in, thus reinforcing the positive mood. It remains to be seen whether investors view the current volatility as a buying opportunity; however, it would be foolish to write off the positive trend. In the words of John Maynard Keynes, “markets can stay irrational far longer than you can stay solvent”.

The final positive factor may be delivered by the Federal Reserve. A slowdown in US growth, and weakening outlook, may lead to the Fed cutting US interest rates perhaps more rapidly than many market commentators expect. Falling interest rates later in 2025 could provide an injection of positivity, and support investor confidence.

Remain focused on the long term

In more volatile market conditions, investors would be well advised to review the composition of their portfolio. They should ensure they have adequate diversification across a range of sectors, geographies and asset classes. Even in the most testing of market circumstances, opportunities always present themselves. For example, bond markets have not been immune to weakness, due to concerns over Government debt levels and the jump in inflation; however, good value can be found within short-dated bonds.

Active equity fund managers can allocate their portfolio to sectors that are performing well and seek value where possible. Where passive funds proved hard to beat in some markets last year, the expected conditions lend themselves well to active fund management. This is why we advocate holding a portfolio that holds both passive funds for broad market exposure, and active funds to drive performance.

We also recommend investors remain invested through any period of volatility, as investment returns are delivered from the length of time invested, rather than timing. Trading market conditions introduces significant risks, and the current uncertainty could lead to a rapid repricing of assets. For example, a ceasefire in Ukraine or the decision to remove tariffs could lead to a marked rally.

Keep a sense of perspective

Looking through the noise and rapidly evolving news flow, and focusing on the fundamentals, can help keep a sense of perspective. Strong corporate earnings, pockets of value amidst sectors left behind by the tech rally of 2024, and a supportive Federal Reserve provide us with confidence that markets can continue to perform well over the medium term. It is, however, clear that short-term risks are somewhat elevated, and external factors, such as trade tariffs and the conflict in Ukraine, could derail confidence in the short term.

Given the changing landscape, it would be sensible to ensure that your portfolio remains under review. Our experienced advisers can take an impartial view of an existing investment portfolio and provide suggestions where changes could be made that are tailored to your needs and attitude to risk. Speak to one of the team to arrange a review of your portfolio.

You may well have noticed the intense media coverage of the rise in UK Government bond yields since the start of the year, which have led to Chancellor of the Exchequer Rachel Reeves coming under increased pressure. Bond markets saw weakness through the final quarter of 2024, which intensified over the first few trading days of this year, over concerns that the Government will need to borrow more money to fund their spending plans. This is not the first time, nor will it be the last, that bond market conditions move from being an investment story to headline news. Just over two years ago, bond market turmoil led to the resignation of Liz Truss in the wake of the infamous Kwasi Kwarteng budget, and in 1976, Harold Wilson’s Government was forced to borrow money from the International Monetary Fund due to the spiralling cost of debt.

How is it that bond markets can exert so much influence? The reason is that Government bond yields are a critical indicator, and have implications for the outlook for risk assets, the wider economy and personal finance.

Bond yields in focus

When Governments look to borrow money, they often do so by issuing bonds, which are known in the UK as gilts. Each gilt offers a fixed rate of interest for the life of the issue and have a redemption date, at which point the Government will buy back the gilt for a fixed price.

Take the example of a gilt issued today, with a redemption date in 10 years’ time. The gilt carries an interest rate of 5% per annum. At the point of issue, the gilt is priced at 100p and it will be repurchased in 10 years at 100p. At launch, the yield on the gilt (which is calculated by dividing the interest by the bond price) is 5%. The Government therefore knows the amount of interest payable on the debt, and investors can easily determine their rate of return if they hold the bond to redemption.

Gilts and other bonds are, however, traded securities, and bond prices will fluctuate over time, with factors such as the underlying base interest rate, the economic outlook and global conditions influencing the direction of bond prices. Low confidence in the economic outlook can lead to investors selling gilts, leading to a fall in price. Any such fall in price increases the yield. Using the example above, if the gilt price fell from 100p to 95p, the yield on the bond would increase from 5% to 5.26%.

Such a move would not impact the level of interest paid by the Government on this particular bond; however, the yield sets the market expectation at which future bonds would need to be priced. Gilts regularly redeem and indeed, gilt issuance is likely to rise to help finance the Government’s spending plans. As a result, the interest costs paid on Government borrowing would rise over time, as new issues need to offer a higher rate of interest to match market expectations.

Bond yields have wider implications

When investing in fixed interest securities, such as gilts and other bonds, the yield is clearly critically important, as it represents the return that you can achieve from holding the bond to maturity. Gilt and other major Government bond yields also set a benchmark return that you could achieve without taking significant investment risk. This has a direct impact on other investment markets, such as equities, as a higher yield makes bonds more attractive to investors relative to equities, and can lead to investors moving out of riskier assets and buying bonds instead.

Central banks also keep a close eye on Government bond yields, as the yield on key benchmark loan durations provides a temperature check on the health of the economy. Sharp increases in bond yields, as experienced in the UK and US recently, could lead to central banks raising overnight interest rates.

Pressure in bond markets not only affects investors but also impacts on other areas of personal finance. Pension annuity rates are calculated with reference to gilt yields, and rising yields can have a positive impact on annuity rates. The opposite is, of course, true, as witnessed by the very poor annuity rates offered when interest rates stood at close to zero during the Covid period.

The rates offered on fixed-rate mortgages are also sensitive to movements in gilt yields, as interest rate expectations are used to calculate rates offered by mortgage lenders. Many individuals will see cheap fixed-rate deals taken out over the last five years coming to an end in 2025, and a spike in yields could heap further pressure on borrowers whose current deal is ending. In turn, this could impact mortgage affordability and dampen demand in the housing market.

Any further constraint on the public purse can also have a knock-on effect on personal finances. If Government borrowing costs become more expensive, this may lead to cuts to expenditure on public services or could force the Government to raise taxes further.

Where next for bond yields?

The increase in yields seen over the last few months is largely a reflection of changes in interest rate expectations. Inflation has been nudging higher, moving further away from the Bank of England target rate of 2%. Investors are also nervous about the prospect of trade tariffs being imposed by the incoming Trump administration.

Given these factors, bond markets are likely to remain volatile in the short term. Whilst the spotlight has rightly been placed on the pressures on UK gilts, bond yields have also risen in the US and Europe, which lead to investment opportunities within fixed income investments. This may well be an ideal time to consider the allocations you hold in fixed income within your investment portfolio. Speak to one of our experienced team if you would like to discuss how your investments are positioned.

We have previously reported on the alarming rise in financial fraud, which accounts for 4 in every 10 offences carried out against individuals in the UK. Sadly, more people are falling victim to ever more sophisticated methods used by fraudsters, who are using new technology to their advantage.

A recent report undertaken by Barclays indicates that one in five consumers have fallen victim to a scam over the last year, and one in three people know of someone who has been scammed. Further evidence of the rise in fraud is that the Financial Ombudsman Service reported that they received over 8,700 complaints relating to fraud in the first quarter of 2024, an increase of 42% on the same period in 2023, and double the number of complaints seen in the first quarter of 2022.

These grim reports are a timely reminder of the need to remain vigilant against fraud. Victims may not only face financial consequences – becoming a victim of financial fraud can also lead to considerable emotional harm.

Financial fraud can take many forms, with the most common being cases where consumers are tricked into handing over bank details to fraudsters, after being alerted that they are due to receive a fictitious refund from an organisation or business, or owe a fine or have tax to pay. Other frauds and scams, including those relating to investments and pensions, have also become more commonplace over recent years.

What can you do to protect yourself?

There are some common-sense steps you can take to help defend yourself against financial scammers.  Firstly, always remain vigilant if you receive any unsolicited communication from your bank, H M Revenue and Customs or any other company you deal with.

You should also be cautious when receiving an unexpected phone call. If you’ve been called by someone claiming to be from your bank, end the call and then phone the official bank number from a different phone. This is important, as scammers can keep the line open if you call back from the same phone. You should never disclose passwords, PIN numbers or bank details over the telephone.

Text messages or emails received from a bank or other service provider should be treated with suspicion, especially if the text message asks you to click on an email link. This could direct you to the scammer’s website, where your personal details can be collected. If in doubt, always log on to a legitimate website directly, rather than clicking a link in an email.

It is not only communications from companies and organisations that need to be treated with care. An increasingly common scam is where a scammer contacts an individual via text message, pretending to be the child of the victim, asking for funds to be sent to the child for a fictitious reason.

You should always be wary of cold callers trying to sell you an investment product or service. Don’t allow yourself to feel rushed into making a financial decision, and always take time to think about whether to take up an offer. This will give you time to seek independent advice before reaching a decision.

Unrealistic investment returns

Scam cases involving investments and pensions continue to rise, and fraudsters are using more convincing ways to make offers look and sound more plausible to unsuspecting consumers. A good rule of thumb is that you should always reject any unsolicited contact offering you the opportunity to make an investment. The contact could come via a telephone call (often from organised set-ups known as “boiler rooms”) or an email, and may offer the opportunity to purchase an investment that can provide unrealistic returns that sound too good to be true. The fraudulent offer may also try and hurry you into making an urgent decision, on the pretext that failure to act quickly would mean missing out.

Protect your pension

Pension scams usually take the form of cold calls, offering investment opportunities in high-risk investments, such as overseas property, forestry or other similar unregulated investments. Many of these offers will suggest that the individual needs to transfer their pension to the scammer to access the unregulated investments, and this is often accompanied by high pressure selling tactics.

Another potential scam is a call offering the ability for an individual to access or unlock their pension before the age of 55. This can only legitimately be undertaken in a very limited set of circumstances and treat anyone contacting you to offer such services as being highly suspicious.

Know who you are dealing with

Consumers can help protect themselves from investment fraud by checking who they are dealing with. The Financial Conduct Authority (FCA) Financial Services Register lists details of firms and individuals who are authorised to provide investment and pension advice.

The FCA also provide a list of “cloned” firms on their website, where you can check whether a fake firm has been previously reported for setting up a fraudulent operation that uses the name, address or other details of a legitimate firm.

Don’t add to the statistics

Given the worrying increase in financial fraud, everyone needs to be vigilant to the risk of falling victim to a scam or fraud. Consumers should always treat any unsolicited contact from a financial services provider, a utility company or other organisation with a degree of caution. Trust your instincts, and if something feels suspicious, then report it to Action Fraud, the UK’s national reporting centre for fraud and cybercrime.

Most investors instinctively feel comfortable investing in their domestic stock market. The FTSE100 index of leading UK shares is made up of familiar names, and within the largest quoted companies, investors can gain access to attractive dividend yields and modest valuations. The reality is, however, that investors in UK equities will have seen returns lag behind those achieved by their global counterparts over the medium term.

Diminishing influence

The story for 2024 has been all too familiar for UK equities. In the period from 1^st January to 30^th October – the day of the Budget speech – the FTSE100 index of UK shares produced a total return of 8.92%, compared to the S&P500 index of US shares, which returned 20.37% over the same period. The gap between the UK and US indices has widened further during November, as investors digested the impact of the Budget on the outlook for UK equities, and US shares enjoyed a boost from the clear Trump victory. Further evidence of a lack of investor confidence in the UK can be observed given the large outflows seen from UK equities in advance of the Budget.

The London Stock Exchange is one of the oldest known trading exchanges; however, the influence the UK can exert in a rapidly changing world is diminishing. Within the MSCI World Index, a composite index of the largest global companies, the UK now accounts for just 3.5% of the index weight, compared to 72% for the US.

The explosive growth in the largest US quoted companies has seen the market capitalisation of Apple, Nvidia and Microsoft all individually exceed the combined value of the largest 100 quoted companies in the UK.

One of the reasons for the lack of traction within UK equities is the absence of large-cap technology stocks. The market clamour for stocks involved in artificial intelligence and other high-growth areas has seen value equities, which offer solid cash flow and attractive dividend yields, fall out of favour. Indeed, the decision of British chip designer ARM Holdings, which decided to relist in New York rather than London, was further evidence that technology stocks that wish to gain wider investment exposure can do this more readily on the Nasdaq exchange.

Impact of the Budget on confidence

You could reasonably argue that the recent Budget has done little to boost the fortunes of domestic equities. Prior to the Budget speech, confidence in the prospects for the UK economy was already at a low point. Government ministers repeatedly warned of tough measures in the Finance Act and the Budget speech itself surprised many economists and commentators with the breadth of tax raised.

From a business perspective, additional costs from the hike in Employer’s National Insurance are likely to impact UK growth. Firms could look to trim expansion opportunities, or more likely pass the additional costs onto the consumer. Sectors such as leisure, hospitality and retail, where many workers receive the minimum wage, will see a direct increase in wage costs from April 2025, which will squeeze margins further.

This set of events have the potential to nudge inflation higher during 2025, and potentially force the Bank of England to re-shape the trajectory for UK interest rates. Whilst further rate cuts are expected, there is growing consensus that the pace and timing of the cuts may be slower than anticipated.

Consumer confidence remains weak, with the “cost of living” crisis still alive and kicking. The combination of mortgage rate resets for those coming off cheap fixed rate deals, higher energy costs and static tax bands, mean that consumers may shun big ticket items whilst focusing on essentials.

An improving outlook for the UK economy could increase investor appetite and boost the prospects for UK equities; however, the projected growth figures announced in the Budget suggest that GDP growth will remain subdued over the next five years. As a result, investors, who take a global approach to investment, may well look to other markets, where growth potential is more appealing.

Reasons to be cheerful

Given the current position, we have painted a rather negative picture of the prospects for both the UK economy and UK equities over the medium term. There are, however, reasons to invest in UK equities, particularly if the investor seeks a high level of dividend income. The current dividend yield on the FTSE100 is 3.70%, although companies offering yields well in excess of this level can be found. Seeking income from overseas investments can be more difficult, with the S&P500 index of US shares producing a dividend yield of just 1.19%.

UK equities are undoubtedly cheap when using certain metrics, with the FTSE100 standing at a considerable discount to the implied earnings growth of the S&P500 index. The UK also stands at a slight discount to Eurozone equities. Whilst you could argue that this suggests that the UK is attractively priced, it is entirely possible that the relative value on offer is by virtue of the modest outlook for growth. In other words, the UK could be “cheap for a reason”.

The UK still has a place

Despite the weaker outlook, it would be unwise to dismiss UK equities. We believe they command a place in a well-diversified investment portfolio, particularly for investors who are seeking income from equities, or value to counterbalance growth in a diversified approach. It would, however, be sensible to consider the composition of your investment portfolio, as holding excessive weights in the UK, without adequate global diversification, could limit the prospects for investment returns, and also introduce additional risk. Many traditional discretionary management services focus on UK equities, and we have seen examples where performance has lagged due to an overallocation to domestic positions.

Our experienced advisers can help review existing investment portfolios and provide independent advice on the current asset allocation, diversification and levels of risk. Speak to one of our advisers to discuss your portfolio in more detail.