A key principle of successful investment is holding a diversified portfolio. This is primary to the strategy which we at Lowes use for our client portfolios.  

The reason for this is to increase the ability of the portfolio to ride the markets up when they are rising and help to protect wealth when markets fall, as they invariably do from time to time, by spreading the risk by investing across a range of assets and investment types. Then if one investment is being negatively affected by market forces, this should be at least in part offset by different assets which may be benefitting from those market forces.  

So, for example, if stocks and shares (equities) are under performing at a certain time, fixed income investments held in a portfolio will usually (but not always) offset this to some extent. The trade-off here is that equities tend to outperform fixed income in rising markets. But holding the two can provide for a more stable portfolio over the long term. 

Adjusting the level invested in each asset within a portfolio – a process termed asset allocation – is how the investment team at Lowes looks to ensure portfolios deliver on the upside as much as possible and help to protect on the downside. We do this by investing in a range of professionally managed funds which offer the level of diversification needed. 

This is not a strategy always adopted by market participants. Over the past couple of years, we have seen investors in general plough into the US, as it was seen as one of the best performing markets, in part due to the proportion of technology stocks in the market, which drove up growth. However, in 2022, technology stocks fell from their highs, taking the S&P 500 lower with them. 

The UK market also suffered towards the end of 2022, which has been attributed to a number of factors including the pandemic, Brexit and the war in Ukraine. Companies’ share prices and value, measured by their price/earnings ratio, dropped. Yet, conversely, this could make the UK market a good place to buy, if you have a long term investment horizon, as valuations are comparatively cheap. 

A recent poll among investment managers put the UK as the most attractive region in 2023 and over the next five years.  

What makes the UK market attractive? First is that many companies listed in the UK derive their earnings internationally, rather than primarily from the domestic market. According to FTSE Russell, over 80% of FTSE 100 earnings are sourced outside the UK. 

Secondly, at time of writing, the average price/earnings ratio for a company – which measures how much investors are willing to pay for a company relative to its current earnings, which reflects investors’ expectations of future earnings growth – is several times higher for the S&P 500 than for the FTSE All Share or the FTSE 100, illustrating the value to be had in the UK market. 

And, as well as sourcing their earnings from around the world, the UK market is renowned for the high number of companies paying dividends, which can deliver useful returns when growth markets are suffering. 

As investors, we can often feel more comfortable investing in our domestic market. With Independent Financial Advice to help in careful selection.  

Now could be a good time to follow that instinct.  

As Independent Financial Advisers we look across the whole investment space to find the right investment options for your financial goals. Get in touch to arrange a no-obligation chat with one of our Financial Advisers.  

If you’re a keen investor, you may also find the following blog posts useful: 

• What is a balanced investment portfolio?  
• Dealing with portfolio risk 
• Responsible investing 

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.