Chris Forgan & Caroline Shaw, Fidelity Multi Asset portfolio managers
The recent shake-up in the markets has undoubtedly prompted many investors to re-evaluate their portfolios and question whether their current investments align with their financial goals. Multi Asset portfolio managers, Chris Forgan and Caroline Shaw discuss the importance of adhering to a long-term investment strategy during challenging and volatile markets.
Market sentiment changes through time for multiple reasons, leading to periods of highs and lows that leave investors wishing they had sold at the peak or bought at the trough. However, predicting market tops and bottoms with precision is notoriously difficult. A more pragmatic approach involves accepting that market volatility is inevitable and recognising that it is impossible to consistently be on the right side of every market move. Instead, focusing on long-term diversification and asset allocation based on an investor’s risk profile proves to be much more effective.
A more reliable option
One approach that stands out in this context is investing in market-cap weighted indices. These indices have the advantage of always being most exposed to the market leaders of the day. This means investors can have exposure to the biggest return drivers without needing to constantly adjust their holdings or spend extensive time monitoring their investments and the broader financial world.
For those seeking a safe place to park their money for the long term, market-cap weighted indices offer a reliable option, allowing them to avoid the stress of making the right calls when market directions change. As illustrated by Charts 1 and 2, the landscape of world equity markets has evolved significantly over the past few decades. The proportion of US equities in developed markets has fluctuated since 1970, with significant shifts such as Japan’s rise in the 1980s and subsequent decline in the 1990s. Similarly, the UK’s share of the market peaked at 11% in the mid-2000s before dropping to less than 4% today.
Shifting market dynamics
A closer look at sectors reveals a similar story of dynamic market shifts over time. For instance, financials dominated as the biggest sector in 1995, but leadership has since evolved, with tech companies now taking centre stage. These transitions highlight the benefits of market-cap weighted indices, which expose investors to future market leaders as they emerge, without the need to predict turning points.
It is fundamentally important that investors do not panic during periods of market volatility. We always emphasize that market corrections, defined as a drop of 10% or more from recent highs, are a normal part of investing and occur regularly in market cycles. We encourage investors to adhere to their long-term investment strategy, avoiding emotional decisions that lead to locking in losses. We highlight the importance of diversification to mitigate risk and reduced exposure to single market functions. Lastly, as experienced investors, we focus on the opportunities, and we remind investors that corrections often present buying opportunities for quality stocks at discounted prices.
Simple, low-cost investing
The Fidelity Multi Asset Allocator range is designed with simplicity, aiming to make financial management accessible, cost effective, and stress free for investors. The key benefit of simplicity often includes lower costs as a simplified portfolio reduce fees and hidden turnover costs. Accessibility also improves as they are easier to understand, enabling investors to make informed decisions without relying on complex financial theories. Finally, we see better outcomes as more straightforward strategies offer transparency to understand performance and risk drivers.
Across the Fidelity Multi Asset Allocator range, our simple, structured, and disciplined approach taps into return drivers from across different asset classes and regions, providing long-term exposure and growth potential without the need to time markets. By focusing on long-term research about risk and return across markets, the portfolios will evolve over time – while keeping their diversified approach.
In periods of market uncertainty, it’s important to stay focused on the long term. Given a long enough time horizon, markets typically trend upwards – and through its diversified approach, the Allocator range allows investors to step back from the ‘noise’ of short-term market movements and stay focused on a long-term asset allocation aligned to their risk preferences.
Our advice is to stay focused on asset allocation, diversification, and risk management rather than chasing sophisticated strategies, and avoid overly complex portfolios or products that are difficult to understand.
Learn more about Fidelity Multi Asset Allocator
Important information
The Fidelity Multi Asset funds use financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The investment policy of these funds means they invest mainly in units in collective investment schemes. Changes in currency exchange rates may affect the value of investments in overseas markets. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. The price of bonds with a longer lifetime until maturity is generally more sensitive to interest rate movements than those with a shorter lifetime to maturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between government issuers as well as between different corporate issuers. Sub-investment grade bonds are considered riskier bonds. They have an increased risk of default which could affect both income and the capital value of the fund investing in them. Investors should note that the views expressed may no longer be current and may have already been acted upon. Issued by FIL Pensions Management, authorised and regulated by the Financial Conduct Authority. Investments should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document (KIID), current annual and semi‑annual reports free of charge on request by calling 0800 368 1732. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0525/403384/SSO/NA
