Your Q3 2021 outlook

There are lots of decisions we have to make when it comes to investing your money, from understanding how much risk you want to take and working out what investments to put your money into, to designing strategies so we can get you the best possible returns. The economic cycle and market conditions are really important when it comes to making these decisions, because they can affect how your investments perform, so we always play close attention to what’s going on.

To keep you updated, each quarter, we speak to Trevor Greetham, Royal London’s Head of Multi Asset Investments, to find out what’s been going on in the global economy and how this could have an impact on your money.

TREVOR GREETHAM: Hello my name’s Trevor Greetham, I’m Head of Multi Asset for Royal London Asset Management, and I’ll be speaking to you for the next few minutes about what’s happening in the world, our outlook for financial markets and how it could impact your portfolio.

The big story of the last few months has been continued economic recovery around the world as social distancing measures gradually ease. Now we know there’s plenty of Covid-19 still around in some countries, we’ve got the Delta variant in the UK and we know that reopening will be bumpy and uneven. But there’s a very high likelihood that the world economy will see one of its strongest post-war years going into 2022, as generally business and life gets closer to normality.

At the same time inflation has been rising and in America they had a 5% inflation rate, which is very high. Some of that inflation is caused by disruptions in the world economy because of Covid-19. So, for example, in shipping there are a lot of ships in the wrong place at the moment, a lot of people had to be social distancing or isolating, and as a result shipping rates have gone very high. In the UK, some of the inflation pressure is definitely associated with Brexit, and Brexit frictions as well. So, we’re seeing some inflation pressures. Policy is likely to remain very loose though. Fiscal policy and monetary policy, particularly in America, we think will remain very loose. And as a result, there’s a very strong economic recovery in prospect.

What that means for investments – well for one thing it’s very good for investments that benefit from strong growth. So, there are parts of the stock market that are more closely linked to industrial activity and commodity pricing power, so the resources sectors for example, the industrial sectors. Also, banks tend to do well as interest rate expectations are rising. Commodities should be rising further, and commercial property in the UK is already seeing quite a strong recovery and we would expect that to continue. On the other hand, there are parts of a diversified multi asset portfolio that will be struggling a little bit if interest rate expectations are going up. So as people start to look forward to higher interest rates, government bond yields can go higher and that can result in poorer returns in the fixed income part of portfolios. And also rising interest rates can be associated with poorer returns from sectors of the stock market like technology, which is very highly valued and quite interest rate sensitive.

So overall a bit of a mixed picture in terms of returns, although generally thinking we think the good will outweigh the bad. We’re seeing a continued economic recovery and we think that a diversified multi asset portfolio spread across multiple asset classes means you can smooth out some of the bumps along the way.

I will come back in three months’ time and update the picture, what we’re seeing in the world, how that recovery from the Covid-19 pandemic is going and whether there are any changes we’re making in our portfolios. Thank you.

This video was recorded in June 2021 during the coronavirus outbreak. This market outlook is the view and opinion of the investment expert and should not be taken as investment advice. Please remember that the value of investments can fall as well as rise, and you could get back less than you pay in.

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