Four years ago, on Monday 23 March 2020, the UK Prime Minister Boris Johnson announced that the UK was to enter a national lockdown, where the majority were ordered to stay at home.  It was a remarkable time and for the following 20 months, there was an overwhelmingly confusing set of rules and guidelines. Remember the rule of six, tiers and quarantine restrictions on national and local levels.  With hindsight and at the time, many of the rules were baffling – I was looking to pass my motorcycle test at the time, and it was postponed several times.  The risk of catching Covid from a motorcycle test is as remote as I can think of, hopefully I would be at least six feet away from the examiner and we’d both have helmets on.  I wasn’t allowed to play golf either.  There are hundreds of other examples of poorly thought through and executed rules from people panicking under pressure.  This is often what happens when under pressure, people panic.  It’s our job as a team to remain calm and plan for the future.

Economy & market conditions

The four years since the lockdown announcement has been a rollercoaster from an economic and market perspective.  For the first time since 2019, we think things are settling down and we are the most optimistic we have been for markets since the summer months of 2020.  A big part of the reason for the optimism and idea that things are settling down is that interest rates are where they are. This not only gives flexibility and options for central banks to meaningfully ease conditions if needed but it also provides far better investment conditions and portfolio stability.  In the last couple of years, the correlation between equity and bond markets has been rising, which is understandable – if interest rates rise, that is generally bad news for equity and bond markets.  That correlation is likely to stay relatively high for the next year or so, however it will now be a tailwind as interest rates will fall, which is generally good news for equity and bond markets.  Once interest rates settle down, which we think they will do in 2025, the correlation will weaken and the higher interest rates on bonds will help reduce portfolio volatility.

Learning from change 

We, like others, have learnt a lot over the last four years as a business, planners, investors and as people.  One area that we continue to learn from is change.  Things don’t last forever and when change comes, some thrive and are more resilient than you think, whereas others fail.  The rise in interest rates was meant to create a severe UK recession (the Bank of England said it would be the longest recession in 100 years), however it now looks like the recession is already in the past.  The Bank of England’s forecasting hadn’t recognised the change in the resilience of consumers and companies.  We think that a change is coming in equity markets and the leadership that we’ve seen over the last year will broaden out and those that have seen strong share price performance despite muted or negative profit growth will start to struggle, whereas others will flourish.

This week we spoke to Paul Major, the manager of Bellevue Healthcare Trust, which is held in all portfolios.  Healthcare is one area that is still operationally recovering from 2020; things are improving however we need new solutions to improve the delivery and efficiency of healthcare services, which is what Paul and his team focus on.  It is a great example where change is coming and the pace of change has increased since, and because of, the lockdowns of 2020 and 2021.  If you want to learn more about this sort of idea, we’d be happy to share the thinking with you.

Looking forward

I hope that we never have to experience lockdowns again in our lifetime, where our freedoms are taken away from us.  However, the experience has made us stronger and during the toughest times we learn the hardest lessons.  The portfolios that we manage on behalf clients look very different to that of 2020 and even last year as the environment has changed.  If you would like to understand more, please get in touch with us.