Gee and Watson

We have been as shocked as everyone else in respect of the unfolding events in Ukraine, and whilst our first thoughts are with the Ukrainian people it is only right that we should also consider the wider economic implications of the invasion.

As the Russian stock market crashed, and then closed, it is important to note that we only have very limited exposure to Russian companies through the Emerging Market Equity funds that we currently hold in our portfolios. Indeed, across these 4 funds the average direct exposure to the Russian stock market is only 1.6%. This is then further diluted by the fact that we only allocate a relatively small proportion of monies to the Emerging Market Equity sector.

Of course, the actions of Russia have caused shockwaves that have been felt far beyond their own stock market, with an immediate impact upon investor sentiment, which in turn has seen a further increase in the levels of day-to-day volatility. However, it should be noted that this is not the only factor which has resulted in a heightened volatility, as the global economy was already nervous leading into 2022 due to concerns regarding rising inflation, amongst other things.

Whilst these causes may be new, or not seen for a great many years, it should be remembered that volatility has always been with us. Indeed, in recent years we have seen many other events which have had a similar impact, whether it be the pandemic, US/Chinese trade tensions, Brexit, the European Sovereign debt crisis, the Credit Crunch et etc.

This is reflected when you consider the performance of our own FTSE All Share Index, which has produced positive returns across 34 of the 46 full calendar years since 1976. Despite this consistent performance, the average annual drop (i.e., from peak to trough, before a new peak is achieved) across this period is 14.4% for each year.

In addition to this it should be remembered that our portfolios are constructed with medium to long term returns in mind, as it is impossible to second guess the impact of sentiment in the short term and it is also very often unwise to follow it.

Unfortunately, we have no idea as to how the situation in Ukraine will resolve itself, and how this will impact upon the rest of the world. Therefore, our recommendation at such times as this is always to sit tight, and if things go down to wait for them to come back. Sometimes, such as in 2020 they can rebound very quickly, whilst on other occasions they can take longer.  But in all instances, it is our recommended course of action.

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