Equity markets have climbed to record highs in the last few weeks, with investors scrabbling to reposition portfolios after news of a vaccine for COVID.
Since the first vaccine announcement from Pfizer revealing its vaccine was 90% effective, markets have been on something of a tear. At the time of writing, the FTSE 100 index of stocks is up nearly 18% in the past six weeks.
While a final few hurdles remain around the vaccine, provided these are met, it appears the next step is managing the rollout of the vaccine globally.
The news has sent sold-off sectors soaring, as investors return to things like airlines, retailers and manufacturers, and also sparked a move out of the lockdown winners which included food delivery companies and online shopping platforms.
So, what does this mean for you and your portfolio? As we emerge from a world where everyone has been locked inside, there are a number of changes we are seeing being played out in markets which you need to factor into your investments.
- New leadership emerges in equity markets, but is it here to stay?
One of the most obvious characteristics of this most recent surge in markets is the recovery of so-called value stocks.
These are names which are considered to offer value to investors because they have already fallen in price for various reasons, but longer term present an opportunity to investors. In this pandemic, the value stocks are in the sectors people are avoiding, be it airlines, retailers or travel and leisure names.
The resurgence for value stocks in the past six weeks has been rapid, erasing much of the lag they had behind other stocks. Whether it is here to stay or not depends on factors including the development of a vaccine for coronavirus.
Rather than take binary bets, one approach is to have a spread of investments across both growth and value names, and across different markets around the globe.
- Beware more volatility
We have seen some dramatic swings in markets already this year which will have had an impact on the value of your investments, but the overall trend across core markets like the US has been an upward one.
The outlook remains clouded by uncertainty however, and while various measures of market volatility have dropped back in recent weeks – particularly since the vaccine announcement and the resolution of the US election – we are not out of the woods yet.
As such, it is important for investors to be prepared for more short-term swings in markets, and to revisit their objectives over the long term and keep these front of mind.
- Have some safety nets
It can be tempting during volatile periods to think that things will never go back to the way they were, prompting investors to move into one sector or another, and avoid others. The reality – as we have seen in the last few weeks – is that markets exaggerate trends (good and bad ones) and investors must be cognisant of this.
One way to lessen the impact of these swings is to hold a range of investments which complement each other by acting differently to each other in different circumstances.
Holding, for example, some equities, some bonds, some commodities like gold and some other assets like property can provide that mix of return profiles and help smooth the path forward for your portfolio.