Market Volatility - Investment Update
Paul Nicholson
Head of Investment Strategy
Update on the markets
- Markets remain volatile, with large equity market swings. We expect additional escalation with brinkmanship likely in the coming weeks.
- We have been positioned relatively defensively, by being underweight the more stretched US and tech sectors, owning bonds and gold.
- We have been patient, and are now opportunistically deploying capital into equities.
Should we sell now?
- In short, no. It is not unusual to see market volatility. Pullbacks of 10% occur every year or two, and 20% pullbacks less frequently. Look through the noise, adhere to the plan, and/or put fresh money to work.
- On the fifteen occasions that US equities have fallen by 15% or more since 1970, 1-year forward returns were positive 80% of the time, with an average return of +17%. A positive return occurs over the following 3 years 86% of the time (average return 46%; all in USD terms).
- Remaining in the market also reduces the risk of missing the significant up days. The 7% intra-day upswing on 7th April 2025 shows how easy it is to miss opportunities.
Figure 1: S&P 500 performance around 15% declines
Source: Bloomberg, Davy as at 7th April 2025, returns in USD. Chart shows average return path from the start of declines of 15% or more.
What about our equity exposure?
- On 7th April, we initiated an overweight equity position buying MSCI World equities.
- Remaining diversified from the Mag-7, already through European and Chinese equities.
What have you been doing to protect my portfolio?
- Bonds – we remain neutral on bonds, which have acted as a ballast for our portfolios.
- Gold – we continue to hold as a diversifier for our portfolios.
Is the US Dollar still a safe haven?
- We anticipate that the US dollar will mildly depreciate. On 7th April, we initiated an increase to our underweight to US dollar for both Euro and GBP based portfolios.
Going forward
- Market volatility to remain exceptionally high.
- Staying invested allows you to benefit from compounding of returns over time.
- We manage volatility, whilst identifying opportunities that will inevitably arise.
Source: Bloomberg, as at 31st March 2025.
Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up. These products may be affected by changes in currency exchange rates.
Warning: Forecasts are not a reliable indicator of future performance.
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