The Garrulous Jay – Getting Help At The Pick’n’Mix

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There has been much talk of late in the investment world about the move out of so-called ‘growth’ stocks and into ‘value’ companies. The catalyst for this has been the now established trend of rising interest rates, augmented by the war in Ukraine. This serves as a timely reminder of the importance of diversification.

Superficially labels such as growth and value can be useful as a way of categorising different businesses and their attractiveness as investments. In very simple terms growth companies offer more jam tomorrow whereas value businesses deliver more bread and butter today.

So, when the outlook is more perilous value companies, with their more immediate and predictable cash flows that may find their way back to investors as dividends, are preferred to growth companies with their less certain promises of more distant returns.

This categorisation can be extended from individual companies to whole sectors of the economy and, depending on where the shares of those companies are listed, to entire stock exchanges. Technology is, perhaps, the most obvious ‘growth’ sector, whereas supermarkets and utility companies would tend to sit in the ‘value’ bucket.

By extrapolation, therefore, the London Stock Exchange is broadly seen as a ‘value market’ whilst the NASDAQ in the US would be classed as a ‘growth market’. It is therefore unsurprising that the FTSE100 is up around 5% over the last six months, and the NASDAQ is down just over 14% (Source: FE Analytics).

It might therefore be argued that the job of any investor or fund manager is to spot these economic trends and invest across the globe, and by sector, in the companies that are best-placed to deliver the highest returns based upon where we are in the economic cycle.

If only it were that simple, but it isn’t! First, it would require a fund manager to cover the entire global range of asset classes, stockmarkets and stocks. Secondly, you’d need an economic crystal ball to make this work and even that wouldn’t protect you against geopolitical shocks such as the one seen this year.

This is why the more prudent approach is to get help at the Pick’n’Mix…

Jim has always had a sweet tooth but over the years he has developed a particular passion for jellied confectionary: for him it’s “chews or you lose”! John, by contrast is all about chocolate in every shape and colour: John goes cuckoo for cocoa. Finally, Jack used to fill his bag with a bit of everything, but nowadays he spends hours choosing his sours.

As confectionary ‘investors’, never quite knowing what our friends or family might want, it makes sense for us to pop a selection of Jim’s, John’s and Jack’s favourites into our bag.

At any given time we won’t be able to forecast what’s going to be hot and what’s not, but by tapping into expertise whilst diversifying our investments by style and geography we increase our chances of attractive long-term returns.