The financial perspective
We’re not recommending or making any changes to our investment portfolios as a result of the invasion:
- Our portfolios – following best practice – have been designed to cope with market uncertainties. We’ve seen that again and again, most recently in March 2020 when Covid first hit.
- None of us can accurately predict the future and so events that are likely to occur are already reflected in stock market prices. Conversely of course, events that are considered unlikely are not reflected in market prices so could be viewed as riskier. The best way to handle this, without imposing additional risk on any portfolio, is to diversify. Our typical client portfolios are invested across thousands of companies, a range of assets, countries and industries. In terms of direct exposure to Russian investments, and therefore of the impact of losses on those investments, as we comment later on in this newsletter it’s minimal.
- Market volatility is usually temporary. We have seen this with the share market fall in March 2020 in response to the Covid pandemic. Investors who had the discipline to stay invested were rewarded when markets almost immediately rebounded strongly, whereas investors who were unable or unwilling to remain invested were likely to have incurred large losses. There is little to say that the current events will be any different to all the prior crises and events.
- Russia simply isn’t a big part of the world economy these days – its GDP is smaller than South Korea’s and about the same as Australia’s
- Of potentially more consequence is the impact on inflation, such as through rising oil prices. Again, nobody knows what this will mean – but shares in particular have generally been a great hedge against inflation.
The ethical perspective
Unlike most firms we have explicitly excluded emerging markets from our new Sustainable and Sustainable Impact portfolios. We have been concerned for a while about the lack of oversight, significant adverse government control and ethical issues associated with some of these countries – which includes Russia. At the time it made us an outlier – now in hindsight it proves to have been a very wise decision and has made us yet again a leader in ethical thinking.