The first half of 2021 was not without its difficult points but overall, this has been a largely positive time for investors. Concerns over the recent increases in inflation plagued both equity and bond markets in February and March, but since then we have seen sustained positive returns and lower than usual levels of volatility.
The cautious tones being used by the major central banks are reassuring to markets which are wary of higher interest rates and the prospect of potentially slower growth and a devaluing of fixed income assets. If inflation is sustained at a higher rate, interest rate increases become more likely. We are conscious of the risks but believe that we are well positioned to deal with the change in the economic environment.
Reports from companies and countries show that for many, the world is returning to pre-COVID normality and some of the pent-up cash is being spent. However, we know that challenges still await and that we are not out of the woods just yet. We continue to select funds for our portfolios with an optimistic mind-set and a moderately increased equity position to try and make the most of a recovering world.
Bond markets are more difficult than they have been in some time, with the prospect of rising interest rates once again on the (distant) horizon. High quality bonds are necessary to a defensive stance, and our Cautious and Conservative portfolios, which contain the highest proportion of these, may have more subdued prospects for returns over the next 12 months and a potentially elevated volatility. If this is a concern for you, please speak to your adviser about the options available to you.
For further details, please read our full Investment Market Review and Outlook at the links below. Performance sheets look at our Whole of Market, Passive, and Ethical Investment Model Portfolios over the last five years: