Here at Applewood Independent, it is our job to ensure that our clients’ money is working as hard as possible so they can rest easy, knowing that their financial futures are secure.
This means that the team and I need to always be on the lookout for what is good value in the market, not just in the past or present, but also what will be valuable in the future.
Back in 2020, we wrote many articles about the stock market’s performance over those volatile 12 months and provided our readers with some predictions of where we might be in early–mid 2021 in terms of investment opportunities.
Let’s see if we were right in our thinking last year, take stock of where we are now, and perhaps provide a little glimpse into where we might be at year’s end.
2021 has been a positive year so far
All things considered, 2021 has been a positive year for the stock markets. After the terrible losses of March 2020 caused by the global pandemic, it was assumed that 2021 would be a decent year because, let’s face it, it couldn’t have gotten any worse!
Based on the effects of the lockdowns, businesses closing and mass redundancies, we were always going to be due a strong recovery once the world started to go back to some kind of normal.
UK funds are still cheap, and less risky too
At Applewood Independent, we were very happy with the value of UK equities and believed they were about as cheap as equities got anywhere in the world – and 2021 has shown us that we were right in this thinking.
If you look at where the UK market was back in January 2020, you can see we still have another 10% to recover, which potentially means we can still get a free 10% return once we get back to full recovery.
So far, UK equities are still the cheapest amongst any of the major world markets, which is good news for any investors looking to invest in UK stocks.
American tech stocks are comparatively expensive
The only downside to 2021 regarding the global markets has perhaps been the rise in prices of the star of 2020 investments: American technology companies.
During the pandemic, American tech companies boomed massively. Everyone was ordering their stuff from Amazon, using Zoom for virtual meetings, and using their phones and tablets and laptops more than ever before.
As we enter the 2021 midway point, these stock valuations look comparatively expensive to where they were before the boom, which may mean money tied up in these stocks is less efficient.
On the other hand, the UK continues to look cheap, and we still back it here at Applewood Independent. This is because the UK still has that 10% to recover, and it will take less risk to do so because it’s a domestic market.
So reducing your exposure to overseas investments like the American market and adding that money to UK stocks, potentially means taking less risk and producing more return, which doesn’t sound bad to anybody.
Commercial property investments in 2021
We’ve talked a lot about commercial property in a blog we did last year, and it still does have its place in investment portfolios at the moment.
Some people may think that the high street shops closing down and offices downsizing may have hurt the commercial property market, but in fact, it still does represent some value.
For example, with the boom in online shopping over the last 18 months, companies need more and more warehouse space to store and ship these goods. And these warehouses are invariably owned by commercial property funds.
Of course, investing in commercial property is more for the protection of a portfolio rather than its growth, but still very much worth considering as a safeguard against volatility.
Fixed interest investments in 2021
Fixed interest investments do look comparatively expensive to where they’ve been over the past decade because of the rise in inflation in recent years. Inflation usually drags interest rates with it, which can diminish the value of a fixed interest fund or investment.
That’s not to say that there aren’t opportunities to be had with fixed interest funds. There are. It just might take a little more work and an experienced independent financial adviser to find them for you. For the moment, their yields are still useful for overall returns.
Rebalancing portfolios with more UK investments
So, based on what we have seen over the last six months of the places in which Applewood Independent has invested money, the UK, although it represents a little more risk than usual, potentially looks to be the best place to focus your portfolio on.
Our philosophy is that UK exposure may want to be a little overweight with UK stocks, especially in comparison to fixed interest funds which are more expensive.
Now, on a traditional risk model, that means you might be taking more risk with your money, but it means we have more of the cheap stuff (UK stocks) and less expensive stuff (fixed interest funds), which is what we want. In the real world, you’re exposed to less potential downtime.
The dangers of investing in UK stocks
Although the UK market does look like a very attractive investment opportunity at the moment, you still need to be very careful before jumping in.
A poor choice of UK stocks can potentially be a hazardous decision to the health of your portfolio, and if you get caught overexposed in this market, without good diversification, your money is at serious risk.
This is why you always need to consult an experienced independent financial adviser before making any decisions.
Doing some research online and finding the top performers of yesterday or today isn’t enough to protect you, should the worst happen. You need to know about what’s going to be good value in the future too.
Remember, the past isn’t always an indicator of future performance, so make sure you are speaking with someone who can make informed decisions on what will be good value tomorrow. That’s the difficult part that makes the difference between long-term success and failure.
I hope this has been useful, and if you have anything else to add, I’d love to hear from you. To find out more, feel free to get in touch by emailing firstname.lastname@example.org.
The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.
The value of your investment can go down as well as up, and you may not get back the full amount invested.
Past performance is not a guide to future performance.