Many investors remain optimistic about the long-term outlook for global stockmarkets. However, at Saxo, we are also noticing that concerns around inflation and market volatility are starting to weigh heavily.
In our latest client survey, we observed that over three times as many investors anticipate a significant market downturn in the coming quarter compared with the previous quarter. More investors are expecting either a major upswing or a sharp decline, which signals heightened uncertainty — a sentiment that makes sense, given the current global landscape.
So, what should investors do? In my opinion, they should view their portfolios as a form of commitment, much like a marriage. You need to stick with it in both good and bad times. By this, I mean that investors should remain invested even during downturns while ensuring their portfolios can weather all kinds of market conditions.
Research shows that “time in the market beats trying to time the market”. Here are some thoughts that may help you manage your portfolio if you’re planning for market uncertainty:
Balance between global and local
Generally, diversifying your stock portfolio across borders is a smart thing to do. The UK market has been underperforming for a while, and that has caused some UK investors to diversify away from their home market, focusing elsewhere, particularly the US.
In fact, the top 20 ETFs and stocks held by UK-based investors on the Saxo Platform are US-based. This is probably due to the exceptional year US equities have had in 2024 with the S&P 500 up around 26% year-to-date. Global ex-US indexes are up only about 3.5%. Most of this diversification has come with investors adding AI and technology stocks to their portfolio, the ‘magnificent seven’ being the key examples.
However, some are speculating how long this S&P 500 boom can continue, especially in tech stocks. The good news is that market developments and technology, have enabled investors to diversify their portfolios across different markets and sectors more easily than ever before.
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ETFs offer a smart way of achieving both geographic diversity as well as sectoral diversity. Let us take India as an example – which has attracted increased investor interest. iShares India ETF is up about 16% year-to-date, while the FTSE 100 stands at about 6.5% growth year-to-date. ETFs covering the Indian market obviously expose investors to Indian economic growth (which has been robust), but it’s also interesting to note that manufacturing stocks dominate the Indian market compared with the FTSE’s service sector and banking firms weighting.
However, different markets can present opportunities for investors with different goals. For example, Saxo customers with UK holdings tend to own stocks that provide strong dividend yields. Examples of these favoured stocks include Legal & General, British American Tobacco, National Grid and Shell. These high yielders can be great options for those looking to earn a recurring income from their portfolio versus traders or those looking for strong growth from their holdings.
Value versus valuation
Investors are also experiencing a quandary when assessing high growth stocks in their portfolios. Many of the high growth stocks in the market today are expensive versus history and sitting on very high absolute valuations. US equities overall are trading at around a 60% premium versus international peers. However, US earnings growth has also proven to be higher.
In simple terms growth has trumped value in 2024. But many will ask; will this winning trend continue? The truth is no one knows. Many will argue that earnings growth needs to catch up to valuations and companies need to start delivering against these lofty valuations. This could be why many are preparing for a future market correction.
Political opportunities
After a year of elections in 2024, 2025 could be the year to take advantage of the political change to support investment goals. In the UK, the increase in Capital Gains Tax (CGT) may drive interest in low coupon gilts (as CGT is not charged on gilt investment returns).
See also: State Street: US the only region investors are overweight
Also, the risk of tariffs imposed on manufacturing countries by US president-elect Donald Trump could also benefit the UK relative to Europe. Our service-heavy economy could have an edge for investors if Trump decides to charge premiums on imports from countries such as China and Mexico. As an example – the UK has no car companies
Bonds can be a safe haven
Make sure your portfolio is balanced, especially in times with high uncertainty. If you are solely invested in stocks, consider adding bonds. We have observed that clients with a mix of stocks and bonds are better equipped to handle significant market swings.
In particular, during market downturns, portfolios that include both stocks and bonds tend to fall less than those focused on a single asset class. Also, portfolios with multiple asset classes not only fare better in declining markets but also tend to deliver higher risk-adjusted returns.
Conclusion
No one has a crystal ball, none of us can predict the future, but when managing a portfolio in uncertain times there are a myriad of factors to consider. If turbulence is the theme for 2025, investors have opportunities to diversify asset classes and invest in new markets and sectors to reach their aims and ambitions as market uncertainty creates opportunities, as well as risk.
Dan Squires is head of UK sales at Saxo UK
