The bounce back in global equity markets seems to have paused. But this comes after an 11% recovery from the lows before Christmas which translated into 7% in sterling terms. It hasn’t been the recovery many expected with some of the riskier companies doing the best. The ghastly ‘risk on’ phrase gets so over used but it does seem apt in the circumstances.
One of the areas that have done well is the smaller companies. We have had something of a bias towards smaller and medium sized companies in the UK for some time. Over the long term, they tend to be stronger performers. But they are not really the place to be when a recession arrives. Now we are still not expecting a recession to arrive in the immediate future, however, we would be naïve not to take steps to protect our clients should one occur in the coming year. Accordingly, we have taken the opportunity to sell into the rebound and are switching some of our small and medium sized company exposure into larger, more defensive companies.
This move is part of our ongoing programme of de-risking and we expect to be making further changes like this over the coming months. We find the combination of blasé investors and pessimistic commentators unsettling. Although the underlying newsflow is not that bad, the risk of a self fulfilling prophecy causing markets to sell off sharply again remains. So we are vigilant and cautious. The end may not be nigh, but this is no time for speculation.
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