Investments

Time in the market – one year on

Lee Moran

It’s safe to say that few people would have predicted the events of the last 12 months. In our personal lives, we’ve had to adapt to working remotely, engage in home schooling and not see loved ones for prolonged periods of time. All of this against the grim backdrop of a global pandemic.

 

Volatile markets

Investment markets fully reflected the uncertainty of a rapidly changing environment. We saw record movements in stock markets, both positive and negative. At the height of the volatility, we were receiving numerous calls from our clients, wanting to discuss what they should do; sell to cash while markets were in turmoil or, hold firm and do nothing.

Understandably, our clients were nervous about the events unfolding and what this meant for them personally. This prompted me to write an article called Time in the market, which highlighted the potential benefits of effectively doing nothing when volatility hits. Timing the market – knowing when to come out and when to go back in - is an almost impossible feat and, more often than not, a case of luck rather than good judgement!

The article focused on the performance of the FTSE All Share1 index, and the detrimental effects to long term investment returns of missing out on the best periods of growth. Given that, historically, the best market returns usually followed negative periods, further highlighted the perils of selling to cash. Of course, I must state here that past performance is not a reliable guide to future returns.


One year on

Given that we are now 12 months on from the COVID-led market sell off, I felt this would be a good opportunity to look at what happened to markets, and how the 1825 portfolios performed during this period.

On 17 January 2020, the FTSE All Share1 reached 4,257. What followed was one of the fastest and steepest sell-offs in market history, bottoming out at 2,727 on 23 March 2020. A fall of 36%. 

However, by 26 March 2020, the index had rallied almost 16%, with this pattern continuing, albeit with some volatility and, as at the end of Q1 2021, the index sat at 3,831, a 40.5% increase from 2020’s market low. 

This was the experience of the market. But, more importantly to us, how did our clients fair over this period? 

The table below has two key metrics – the first column illustrates the biggest drawdown (or loss) each portfolio experienced in 2020. The second column highlights the level of return each portfolio has provided, from the low point in 2020, through to the end of Q1 2021. Finally, the third column shows the total level of return from 1January 2020, pre COVID market sell-off, right through to the end of Q1 2021.

Maximum drawdown in 2020 Return from low point (23 March 2020 to 31 March 2021) Total return (1 January 2020 to 31 March 2021)
1825 Portfolio 1 -12.27% 14.51%* 1.60%
1825 Portfolio 2 -15.97% 19.41%* 1.70%
1825 Portfolio 3 -19.90% 27.20% 3.78%
1825 Portfolio 4 -23.49% 35.41% 5.59%
1825 Portfolio 5 -26.86% 45.64% 9.05%

Source: Financial Express (FE) using daily weighted average returns compounding over time.

*low point was 19 March 2020

Past performance is not a reliable guide to future performance.

What’s striking here is that all five portfolios were able to not only fully recover from their lows of 2020, but, in fact, were able to post strong, positive returns above their starting point at the beginning of January 2020.

This once again highlights our view that often, the best course of action is to remain invested when markets are volatile and share prices are plummeting. Many investors would have sold out to cash during March 2020. Some will have returned to the market at some stage, having missed out on the first part of the rally, whilst others will still be in cash to this day, having missed all of the growth. 


Diversification

The 1825 portfolios are well diversified across multiple asset classes and geographies, in order to provide returns in line with our clients’ risk tolerances. The table below shows year on year performance for each portfolio in each of the last five years:

Mar 16 to Mar 17 Mar 17 to Mar 18 Mar 18 to Mar 19 Mar 19 to Mar 20 Mar 20 to Mar 21
1825 Portfolio 1 7.42% 1.33% 2.16% -3.70% 10.10%
1825 Portfolio 2 10.52% 2.11% 2.63% -5.72% 13.56%
1825 Portfolio 3 13.33% 2.63% 3.18% -7.97% 20.01%
1825 Portfolio 4 16.54% 2.92% 3.53% -10.42% 26.38%
1825 Portfolio 5 19.90% 2.64% 4.06% -12.12% 34.57%

Source: Financial Express (FE) using daily weighted average returns compounding over time. The funds’ weights in each portfolio are taken from representative model portfolios, and its underlying funds’ prices are sourced from FE daily. These returns are indicative values where actual returns may differ slightly, for example, as a result of cash inflows or withdrawals. Please note 1825 Portfolio performance figures are shown on a gross of product or specific advisory charges bases; but are net of 0.20% discretionary management fee, net of underlying fund management fee, with net income reinvested unless otherwise stated.

Past performance is not a reliable guide to future performance.


To sum up

It’s in times such as these that the perils of market timing are laid bare. During such periods it often pays to hold your nerve and do nothing on the basis that, over time, a recovery will come and that your financial planning objectives will be met.

If you’ve any queries, please contact your 1825 Financial Planner or, if you’re new to 1825, Contact Us and we’ll be happy to help.


The information in this blog should not be regarded as financial advice. Please remember that the value of investments can fall as well as rise and you could get back less than you paid in. All information is based on our understanding in May 2021.

1FTSE International Limited (‘FTSE’) ©FTSE 2020. ‘FTSE®’ is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.