Holly's Blog: A grim week

The sobering news from the Ukraine, and chilling statements from Putin yesterday, prompted predictable falls in European stock markets and volatility across the board.

Investors don’t like uncertainty, and there was a scramble to so-called ‘safe-haven’ homes for our money - such as cash, bonds, gold and the dollar - as German, Italian, French and British markets were hammered. That said, the falls were not as bad as some had feared, and it was more a scene of financial disruption than financial devastation.

Commodities were up, helped by oil heading past $105 a barrel. Wheat prices are at a 13-year high. The costs of the raw materials destined for the world’s factories is going up. Feeding the nasty inflation bogeyman.

By way of an example, I bought the Wisdom Tree Enhanced Commodity ETF about a year ago. This fund has energy, agriculture, industrial metals and precious metals in it – and was an example of diversification in motion yesterday, up by about 4% early afternoon as many other investments fell. My small holding in a physical Swiss gold fund was also up. You can touch gold. It is literally solid. People like gold when the world goes mad. Three words were really driving markets yesterday morning – oil, inflation and fear.

Over in the US, the tech-heavy Nasdaq started weakly, bumping along at near 12-month lows, but see-sawed higher on Thursday by its close. Some closer to the action than I reported that hedge funds were closing out many of their short positions, as it all got a bit too alarming. These are bets that markets will fall – but they are high risk and are nail-biting at the best of times. To get rid of them, you effectively buy the underlying shares (which in turn drives prices higher). It was a Yo-Yo Day, with the Nasdaq down by over 3% at one point, but eventually closing 3.3% higher. Welcome to 2022-style volatility.

I am clearly not cut out to be a trader. Yesterday I did little more than read the news with a sense of horror and sadness. But news moves markets, and quick people have always made money from moving markets. (And of course other quick people have lost money from moving markets. They just don’t tend to shout about it so much!)

Plenty of busy bees on trading platforms. The fourth most traded investment fund/trust/ETF on Interactive Investor this week was the JP Morgan Russian Securities investment trust, against a backdrop where the main Russian index fell by 45% at one point, eventually closing with a loss of ‘only’ about 32%. (Time for a “Don’t Try This At Home Folks” disclaimer – this is hardcore stuff!). This trust had fallen by 18% in one week when I last looked yesterday. What were investors up to? 67% of them were buying. Blimey.

And the most traded on ii? Scottish Mortgage Investment Trust, which is down about 10% in one week. 65% of all trades on this were buys. Interestingly the Court of Public Opinion was less warm on the other DIY investor darling, Fundsmith Equity. 60% of trades on this second most traded fund were sells.

As we continue into another year of volatility, jittery markets will present opportunities as some sectors are oversold. Younger investors should hold their nerve and drip-feed monthly into global diversified funds or portfolios with their long-term savings (assuming the usual caveats - no expensive debt and a cash buffer for emergencies). Harder as always for those in retirement who sell down periodically for income. I’ll write more on this in coming weeks.

What is inevitable, from a financial perspective, is that there is more volatility ahead. There are still many cards left to play as we watch these horrific scenes play out. A grim week indeed.

Holly

Sponsored message: M&G Investments

We all want to make the world a better place. For younger generations to inherit a brighter future. But there are great challenges for us to overcome together. For the planet and its people. From stopping environmental damage to tackling social inequality.

Read more.

Visit M&G's Facebook page.