Disclaimer
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.
As we head into the end of August, the S&P 500 has managed to produce almost five consecutive weeks of gains. This is the first time it has done so since November of last year, an innocent time when inflation readings were yet to hit double figures and Russia hadn’t started the first ‘great power’ war in Europe for decades.
It would be easy to look at this and believe some sort of bounce back was afoot. But as the author Satyajit Das wrote at the start of this month, “proximate noise – day to day gyrations and speculation – masks the underlying problems afoot.” Those problems are manifold, whether it be inflation, ongoing supply chain problems, or a prospective energy crisis.
These would hardly be ideal in any situation, but they are likely to compound problems that were already present in much of the world. High levels of government debt, expensive public services, and unstable demographics, where increasingly elderly populations cannot be provided for by a shrinking numbers of workers, were already present prior to the pandemic. Subsequent events are unlikely to have improved things.
Those who agree with fund manager Crispin Odey, who noted in May that “outages, shortages, strikes, and war will come along,” may feel compelled to go buy a load of gold bars and keep them hidden somewhere in their house until this all blows over.
For others that don’t see things getting quite so anarchic, but still accept that perpetual growth is not guaranteed, nor to be relied upon for investment returns, other alternatives may suffice. This was something that Premier Miton fund manager Gervais Williams, who believes some small caps may benefit from the current macroeconomic dynamics, said when we spoke to him recently.
Japan may also be looked to as something of an example. The country has definitely not found a way out of its demographic and economic problems. Nonetheless, in a decade in which its GDP has shrunk substantially, managers at trusts like CC Japan Growth & Income (CCJI) and JPMorgan Japan Small Cap Growth & Income (JSGI) have managed to deliver respectable returns for shareholders, partly by looking at ‘New Japan’ companies that aim to tackle some of the problems the country is facing.
Of course, we could be totally wrong and the S&P 500’s performance may be the start of another bull market. But for investors that do believe the various problems that have arisen over the past two years will cause meaningful changes to how we have invested over the past decade or so, it may be worth thinking about how to shift your portfolio in response.
Past performance is not a reliable indicator of future results
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