This podcast isn’t personal advice. If you’re not sure what’s right for you, seek advice. Tax rules can change and benefits depend on personal circumstances.
Use the player icons above to listen on your favourite podcast app, or read the full transcript below.
Investments can go up and down in value, so you could get back less than you invest.
Full podcast episode transcript
0:01 Susannah Streeter: Hello and welcome to the Switch Your Money On podcast with me, Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown.
0:14 Sarah Coles: And me, Sarah Coles, Head of Personal Finance.
0:17 Susannah Streeter: So unless you've been hiding under a rock, you can't have missed the rollercoaster of activity, which has kept us and the rest of the investment world on their toes over the past six months. Now, much of this market volatility has been caused by geopolitics and trade turmoil rather than big shifts in economic data. So we thought we'd run through what professional investors and fund managers have been doing amid this turmoil, and the downs as well as the ups we've seen. And there have been quite a few of them with a number of global indices hitting fresh record highs this summer.
0:47 Sarah Coles: Yes, of course it's a stark contrast to April where we saw deep plunges on markets but I suppose all this volatility has provided fund managers and investors with opportunities to kind of buy and sell assets at potentially attractive prices. But what's been really interesting to see is that at a professional level, why there's been a recalibration. Most investors haven't actually made drastic changes to the amount they've invested in different asset classes like shares or bonds.
1:11 Susannah Streeter: That's right, I mean part of the reason for this is the greater level of uncertainty created by all the political noise around things like tariffs and sometimes the best option can be to do nothing rather than try to take advantage of what appears to be a good buying opportunity. If you are uncertain of the future, defining what a good buy opportunity is can be pretty difficult.
1:31 Sarah Coles: But what about where the money is invested in equities? Has that changed?
1:35 Susannah Streeter: Yes, one trend that is fairly common is this desire to either reduce a proportion of a portfolio invested in North America, or at least not add any more to current amounts invested there. So we've been looking at the latest quarterly survey by Citywire, 14 model portfolio service providers in the UK, and 26% of respondents have been looking to reduce the amount that they are invested in North American stock markets. And the same survey suggests that 31% of those who replied to this survey are looking to increase exposure to European and emerging market shares. So for retail investors, this desire to want to buy the dip and be quite active during periods of market volatility can be high. There are always stories of someone who did manage to time buying perfectly at the bottom and many people suffer from the fear of missing out of these opportunities. But I think retail investors can learn a lot from their professional counterparts here, sometimes doing nothing can be the best active decision.
2:33 Sarah Coles: It's definitely the approach I take to jogging. But if we look sort of a little bit closer at this data and look beyond sort of geographies what about where people are putting their money when it comes to sectors?
2:43 Susannah Streeter: Well it is interesting to look at some of this rebalancing going on. With tech falling out of favour and instead infrastructure and financial services firms growing in popularity. So Citywide Elite Companies report for the third quarter highlights these trends. They rate companies on their popularity with what they believe to be the world's best equity portfolio managers. Spanning more than 70 global markets, companies are rated from the highest triple A to AAA and so on. About 6,000 of more than 56,000 companies listed globally qualify for a rating, and only the top 10% are rated triple A and it's really interesting because it shows that British companies have jumped in popularity over the quarter with the number boasting top triple A ratings increasing from 12 to 21. And among those to gain top ratings in July are Lion Finance and HSBC, and two property-focused companies, construction group Balfour Beatty, and the real estate investment trust Land Securities.
3:44 Sarah Coles: So that's the good news. Who has been going down the scale in popularity?
3:48 Susannah Streeter: Well, it's tech stocks. The world's best managers appear to be losing a bit of interest in tech, with the number of stocks from the sector boasting top triple A ratings down to 54 from over 90 a year ago. However, many technology sector mainstays remain very popular, with Taiwan Semiconductor Manufacturing and Microsoft both still among the 10 top stocks globally. It is worth saying that this isn't a recommendation to buy, sell, or hold any particular investment, and no view is given on the present or future value or price of any investment. And investors really have got to form their own view of an investment, including the specific risks, of course, before investing. Investing in individual companies isn't necessarily right for everyone. Investors should make sure any new investment forms part of a diversified portfolio and also is aligned with their investment objectives.
4:37 Sarah Coles: Some really useful reminders there. So while we're not seeing big shifts in portfolio makeup, there are some adjustments going on and it is certainly worth your while looking at just how exposed you are to any particular market.
4:48 Susannah Streeter: Yes it is, but determining exactly how diversified your portfolio is, isn't always as easy as you might think. So if you look at the HL platform and what our clients are doing, they don't appear to be overweight US equities. They make up just over 5% of assets under management compared to more than 20% invested in UK equities. North American funds make up 3.4% of assets under management, compared to 13.6% invested in global funds. However, the problem is, is that some global funds are really skewed towards the US, given the huge valuations of handful of tech giants. So, investors may feel they're diversified, but they actually could still be more concentrated in the North American market than they realise. For example, the MSCI World Index has 72% exposure to the United States.
5:41 Sarah Coles: And I suppose this is important particularly because the full outcome of trade wars really is pretty much unknown still and although inflation hasn't risen in the US quite as much as feared, price rises are still expected going forward and growth is expected to be slow.
5:53 Susannah Streeter: Yes so during periods of volatility and big market changes like this it is important to review your portfolio and check that you are still comfortable with it, look at how your investments have performed to see if the weightings in your portfolio have got out of kilter and need rebalancing. And it really is worth taking the time to consider if your circumstances, your tax position, or your attitude to risk has changed too. I think it does pay to be smart when you are reviewing your portfolio because making too many changes and the possible cost of trading can also eat into your returns. But it is worth just keeping an eye out and making sure that you have reviewed your portfolio and are comfortable with it.
6:32 Sarah Coles: And of course it's interesting to see that Europe and UK companies appear to be among the beneficiaries of this rotation away from tech in the US.
6:38 Susannah Sreeter: Yes there does certainly appear to hopes that the UK government's push into spending on infrastructure and on house building could offer growth prospects ahead. And the latest data shows that consumer confidence is growing, hitting the strongest level since before the autumn budget last year, according to new figures. These are the latest monthly S&P Global UK Consumer Sentiment Index. Bit of a mouthful, but it's one which is really interesting to watch. And it found that consumers were still relatively downbeat but saw sentiment move higher after the latest cut we had to interest rates. Of course, the Bank of England did vote to cut the base rate from 4.25% to 4% at the last meeting.
7:17 Sarah Coles: Yes, it certainly does seem as though that interest rate cut has been received positively by households across the country. But it's looking less likely that we're gonna get another one by the end of the year.
7:25 Susannah Streeter: Yes, it is. Those interest rate expectations have scaled back but amid all of this, we've still had fresh rallies on stock markets. The FTSE 100 raised to another record as some of the trade concerns eased and there was a flurry of positive corporate results helping power risk appetite. The Nikkei in Asia also headed to fresh heights as more uncertainty has returned to corporate Japan given that a new tariff regime has been agreed, it's helped boost stocks. The weaker Yen’s been a positive force given that it increases the value of profits made abroad. So you've got the likes of car makers like Toyota and Honda, as well as Uniqlo owner Fast Retailing where they were among the biggest beneficiaries amid expectations that consumers overseas will keep snapping up their products given there's greater clarity now over pricing though of course, there is still no guarantees. I mean the tariff outlook is still a little bit uncertain. Trump is known for his unpredictability.
8:19 Sarah Coles: Yes I'm sure we'll still be talking about uncertainty over tariffs in all the months to come.
8:24 Susannah Streeter: Now I mentioned Fast Retailing there and it does take us nicely to the fun fact of the week. So Fast Retailing is the owner of the Japanese clothing chain Uniqlo and it was one of those big gainers which helped propel the Nikkei higher. Now Sarah I'm not sure if you're a Uniqlo wearer, they do seem to have got it right in the style stakes for generations because both my son and my mum and actually my sister are pretty avid fans. But I want to know where you think the name comes from. So I've got a multiple choice here, Sarah. Okay, are you ready?
8:54 Sarah Coles: Oh, always ready for this.
8:55 Susannah Streeter: So is it, did the name come from the fact that winter puffer jackets, part of the brand's first collection, were designed to be worn in icy, igloo conditions? Or the name came about as Uniqlo was simply a result of a typo, someone somewhere in an office with a very fat finger? Or is it because it originally sold glow-in-the-dark individual household items before moving into clothing ranges, Uniqlo.
9:21 Sarah Coles: [laugh] I really like the last one but given how kind of scaled back and cool all their clothes are, I can't imagine glow in the dark. So I'm gonna go with winter puffer jackets ‘cause I just like the idea of, you know, you can only wear their clothes if you're in an igloo.
9:34 Susannah Streeter: I'm afraid it's not right. It is actually because it was the result of an unintentional typing error, a big fat finger. The company originally was called Unique Clothing Warehouse, and it intended to register as Uniclo but a staff member misread the C as a Q during the registration process back in 1988 and so the company decided to embrace the mistake and the name Uniqlo stuck. Not that different but I think it's interesting, nonetheless. A big fat finger mistake creates this global brand.
10:08 Sarah Coles: I think it's always interesting when a typo sticks. I think possibly the scariest one is when people are putting them into their sort of birth registrations and you end up with these peculiar spellings of different names.
10:18 Susannah Streeter: Not quite happened with us thankfully. Thanks, Sarah. Lovely to talk as usual. But before we go, we should say this was recorded on Friday the 22nd of August, and all information was correct at the time of recording.
10:29 Sarah Coles: Nothing in this podcast is personal advice. You should seek advice if you're not sure what's right for you.
10:33 Susannah Streeter: Investments rise and fall in value, so you could get back less than invested. Investment income varies and isn't guaranteed. Past performance is not a guide to future returns.
10:42 Sarah Coles: So all that's left is for us to thank you for listening and to thank our producer, Elizabeth Watson.
10:46 Susannah Streeter: We will be back again soon. Goodbye.
10:48 Sarah Coles: Goodbye.