Our Chamber Corporate member Antonio Rosa from Blacktower Financial Management Group in Portugal presents his insight of the major trends on the stock market
If you routinely follow the stock market, it may not have escaped your notice that there was a major decline in the US NASDAQ Composite on 5th January – in the region of 3.3% drop.
In addition, a further decline of 4.5% has occurred between 6-10 January. This is being blamed on the US Federal Reserve, which published the minutes of the December meeting outlining plans to bring forward interest rate rises to deal with increasing inflation. The policymaker also agreed to end their pandemic-era program of bond purchases and mortgage-backed securities with a balance sheet reduction coming soon after the planned interest rate rises.
When such events occur, clients naturally become concerned about their investments so this article will look at the potential impact on returns for our globally diversified, multi-asset, portfolio fund, Nexus Global Solutions Fund which has some exposure to technology stocks. New
investors to this fund should be reassured that exposure to US tech stock fluctuations is managed.
What happened to NASDAQ?
Technology stocks can be one of the more volatile stocks to invest in and Nasdaq has
seen some ups and downs over the past few months. However, if you look at the
performance over the past 12 months, the index has increased over 12%. Given the
weight of technology stocks within the US stock market, a US investor would have
felt last week’s selloff particularly hard. For Nexus Global Solutions Fund, the diversity
of the portfolio meant that although it was not immune to the drop in Nasdaq, it made
money in UK equities and the declines in other geographies weren’t as dramatic as the
c. 7% decline for the Nasdaq.
What does that mean for investors with Nexus Global Solutions Fund?
History suggests that these selloffs are relatively short-lived. For that reason,
the Nexus Global Solutions Fund will continue to invest in good quality technology companies. In addition, the fund does not invest in many ‘ARK type’ stocks which are popular with retail
investors. Of the top 25, Nexus Global Solutions Fund has only Tesla, and then just a modest weight. The technology stocks within our diversified fund have fallen but often to a lesser extent than more obscure, higher risk stocks such as those in space exploration. More established technology companies such as Amazon, Intuit and Adobe retain our confidence and the outlook for the earnings of these companies remains supportive.
The Nexus fund aims to avoid ‘over-valued, fundamentally weak companies’ because
they could be vulnerable in a selloff.
Is this the calm before the storm?
Predicting what might happen next is incredibly difficult but we can be sure that central banks will start to raise rates soon.
It’s unclear exactly how quickly this will occur and the full effect of the Omicron COVID variant is not reflected in the Fed’s December minutes which could still have an impact on timing of rate rises and the extent to which it sells of assets. If the economy begins to slow down as consumers reduce spending on travel and leisure activities, the Federal Reserve will be less likely to move aggressively with interest rate rises. As ever, we shall have to wait and see.
Making investment decisions in 2022
A continuing balanced approach to equity markets is expected during 2022. The Nexus
Global Solutions fund favours developed market (DM) stocks over emerging market
(EM) stocks as DM equities have large sector weights to preferred areas such as technology and companies exposed to the transition to net zero. It’s also expected that bond yields will gradually head higher but staying historically low. Equity returns are expected to be positive, though lower than 2021 and volatility will increase to more normal levels.
Advice from Blacktower Financial Management
Investing for the medium to long term can be daunting, especially if you have limited time for doing your own research. Blacktower Financial Management wealth advisors can assess your situation, helping you to identify the best way to structure your wealth to grow and preserve your
wealth. We will regularly review your position to ensure that you achieve your financial goals now and in the future.
Contact one of the representatives at our Lisbon office today for your free no-obligation
Blacktower in Portugal
Blacktower’s offices in Portugal can help you manage your wealth to your best advantage.
For more information contact your local office.
Antonio Rosa is the Associate Director of Blacktower in Lisbon, Portugal.