Market volatility, oil prices and your personal financial planning

HELEN PERRIN: I can't believe how quickly time has gone, but we're celebrating the one year anniversary of the launch of our multi-employer webinar series this month, supporting employees with their personal finance decisions. So thank you to those of you who have joined us on that journey so far. And for those who may have missed some of the previous sessions to date, we've covered topics such as pension taxation, setting SMART personal financial goals, estate planning and inheritance tax, planning for long-term care costs, divorce and separation, and money matters for women.

So all of those topics are available to watch back on our dedicated financial wellbeing website, and I will share a link to that in the Q&A so you can watch those sessions back should you wish to. Today's topic is stock market volatility and in particular staying disciplined around all the noise that we hear. I can't think of anyone better to talk to us through that topic. And that is Eleanor Ingilby.

And Ellie is Head of High Net Worth and a Portfolio Manager at atomos. In her day job, Ellie manages a range of clients including trusts, charities, and private clients. She provides bespoke portfolio management, considering investment guidelines, suitability and tax factors, and works closely with financial planners at atomos solicitors and accountants to meet clients goals.

So we scheduled this session in with Ellie earlier in the year to talk us through the conflict in the Middle East. Increasing oil prices and the growth of AI could mean for stock market returns. And whilst we chose the dates some months ago, it is a good week to discuss all of that. With the Iran conflict very much back in the headlines following peace deal discussions last weekend and the initial public offering of SpaceX shares last week, meaning investing and company valuations are being hotly debated, not just in the usual professional forums, but in my experience, parents in school playgrounds, across garden fences and in the local coffee shop.

So maybe you've had those conversations too. But there's very much debate going on around what are SpaceX shares worth. Should I be getting in this? And those of us who suffer from FOMO, it's quite good to have somebody like Ellie to bring us back to what is the fundamental of investing and how can we build a balanced portfolio which takes into account emerging trends and ever changing political backgrounds. And so it's not very exciting, but I think the phrase time in the market beating timing the market sums up the importance of staying disciplined when we have all that noise around us.

On that note, I'll hand over to Ellie to talk through how atomos build portfolios using market research, controls, and the expertise of WTW's investments team to help individuals grow their money over the longer term, and also to give her take on recent market volatility and the expectations for stock markets over the longer term as well. So over to you, Ellie.

ELEANOR INGILBY: Thank you very much, Helen. I'm going to share my screen now. So hopefully you should all be able to see that clearly. Now as Helen said, I actually put this presentation pack together around three weeks ago, which was somewhat optimistic of me given the events of this year, because what we have learned is that things can change incredibly quickly, usually driven by a tweet from Trump. So hopefully this is it should be up to date and reflecting what we do.

But I wanted to start off before we get into markets with a quick reminder of who we are and how we work alongside Willis Towers Watson or WTW. So we work together to provide a joined up service combining financial planning and investment management. Now you can obviously approach us through financial planning, or you can come to us if you purely want the investment side straight to a portfolio manager like myself.

So for employees, that means access to advice that covers not just investments, but pension, retirement planning, tax considerations, and broader financial decisions. I think in a world where there seems to be as many financial products as there are streaming platforms, it's useful to be able to get that clarity, even if it's just an MOT of sorts, a health check that you're moving in the right direction.

So what does a portfolio manager actually do? And it really shows, I think, in this chart, the life cycle of how we manage a portfolio. The important thing is that the value isn't really in any single box. As Helen mentioned, it's in the judgment that sits over the entire process. So everything starts with understanding what success looks like for you. So before we buy a single investment, we're getting to know you. Agreeing objectives, risk parameters, tax considerations, any personal preferences such as ethical considerations or constraints. And that's the foundation that then drives the future decisions that we make.

So we also look at asset allocation. And that isn't just about buying stock pick A or stock pick B. It's getting the overall asset allocation right. How much risk we're taking, and where we're taking it? Ensuring that the portfolio actually matches to your objectives rather than simply chasing returns. So once we have that in place, we then construct a portfolio for you using investments that have been researched and approved by the investment team.

So my role is then to select the combination that best fits your circumstances, rather than applying a one-size-fits-all solution, but with strict compliance oversight. So execution. It sounds quite straightforward, but it matters. So making changes efficiently, managing your own cash flows, rebalancing top ups, withdrawals, and ensuring everything is implemented quickly and accurately is a huge part of what we do.

And then step 4, so monitoring and oversight. So this is where I think we really earn our keep. So markets change. Tax rules change. Your own lives change. We're continually monitoring the portfolios to make sure they're still aligned with the objectives we agreed at the outset. And then step 5, so communication. So a good portfolio isn't much use to you if you don't understand what's happening or why decisions are being made. So really important part of our job is translating investment complexity into something meaningful and relevant to you.

And then behind all of this, it's a wider team of investment specialists, operations professionals, and administrators. So whilst you do have your named dedicated portfolio managers, your primary point of contact, you are benefiting from all of that support and expertise. So obviously the investments are very important, but I believe the real value is having somebody whose job is to keep the whole thing joined up and linked to you as an individual, especially when markets behave irrationally.

So talking of markets behaving irrationally, this is a really interesting chart. And I think it does really stand up this year. So every year gives investors something to worry about. On this chart, the dark green bars show the maximum intra-year drawdown. So that is how much the market dropped by from peak to bottom within that calendar year, and you can see the years are along the bottom. The yellow line is actually the calendar year return you would have received if you'd stayed invested during that period. And this is just based on the MSCI World Index. That's just global equities.

So you can really see there's little correlation sometimes between how much volatility is within a year and how much return you actually got if you stayed invested that year. And I think the most valid point of this is actually 2020, which you can see there a 26% drop in markets. But if you had stayed invested, you would have had a return of just under 15%. And that can feel quite nerve wracking to actually navigate through. So then you start to think, well, hang on, when are those good days? When does the market go up? Could I possibly time that?

Well, this chart shows you when the 10 best days were in the market, and you might be surprised to see some of the titles there. Global financial crisis, the COVID pandemic, and tariff and trade volatility. So one of the market's strongest single days immediately occurred after one of the weakest days, which really I think shows the importance of not mistiming an exit from the markets if you're feeling nervous in any way.

But what about cash? So say you actually do want to try that, and you're thinking, I'm going to time the market. And we do get this occasionally, a client feeling nervous and thinking the headlines are awful. I think I'm just going to go to cash a bit. Well, the problem is, when do you buy back in again? We've already shown that some of those best days happen very close to those worst days. And sadly, the market doesn't send you a diary invite or a WhatsApp when it's going to go back up unless you're perhaps part of Trump's personal WhatsApp group.

But cash can feel safe, but can also quietly become very expensive. And you can see that clearly on this chart of the return you would have had if you'd invested on all the days, and if you'd actually missed some of the best days.

So the risk with cash is when it actually becomes a long-term parking place, rather than a short-term use of capital. And we appreciate that with interest rates standing where they've been, cash has been an attractive place, and it does certainly work in the short-term. But in the longer term-- and we say that for a period of over five years-- you can see from this chart just shows £1 taken and invested, even in a bank account, which is the yellow line, or in global equities, which is the dark green line. That is a vast difference over the longer term.

So let's move forward. What has performance been so far this year? Now, if you've just been focusing purely on the headlines, you might have expected to see quite a bit more red in this chart, which shows you the equity market performance at the top, fixed income in the middle, currencies, and then commodities at the bottom.

Now there have certainly been pockets of volatility. But underneath that noise corporate earnings have actually remained incredibly resilient. And that's something we do see repeatedly over the years. The headlines can drive the sentiment in the short-term, but the fundamentals tend to drive the returns over the longer term. And you'll note at the bottom there, if you just focus in on commodities and we will touch more upon them, gold is actually down 1.8% this year and oil is up around 49.2%.

So let's talk about Iran. It would be impossible to do a market update and not touch upon it. So the recent US and Iran tensions have understandably captured investors intention. So markets initially reacted by pricing in higher geopolitical risk, which translated into those higher oil prices. However, what has been interesting is quite how quickly markets have adjusted their expectations, particularly a more constructive outcome has potentially emerged over the weekend. But it really demonstrates that markets look ahead. And the main risk that they've perceived in this conflict is actually the energy risk. And what that does potentially to interest rates and inflation.

So that is really the key point is that the energy markets have remained the main transition mechanism into broader markets of this conflict. So when oil prices move sharply, investors naturally begin thinking about inflation, interest rates, economic growth. The good news is that with the announcement of a potential peace deal, some of this concern has eased slightly. And oil prices, as you can see from that chart there, were already starting to move back down to where they started the conflict, which was around $70 a barrel. Whilst gold has remained relatively flat, but really starting to drift downwards as the conflict goes on.

But I want to turn to equity markets. So this chart traces some of the major equity indices since the conflict started, which is around the end of February of this year. Now, you can see there was that initial concern as all the markets dipped slightly in March with that desire to understand what was happening and how was it going to transmit. But ultimately we can see they focused more on fundamentals and started to improve again.

Now, what is notable in this chart? We will touch more upon it further into this presentation, but you can see that the top line is the US performing astronomically well, mainly driven by what we refer to as "the Magnificent 7", which are those seven core tech stocks. With the emergence of SpaceX, I think the market's going to have to find a new acronym to cover those.

But what you can note is that emerging markets, that yellow line, really starts to climb upwards in April. Now that is one of those collateral effects of that AI growth. As we see that increased spending, a lot of investors have thought, well, "the Magnificent 7" are brilliant. I already have those in my portfolio. But what about where they're buying their materials from? How are they building the data centers? Where the materials for these semiconductor is coming from? Who's creating the semiconductors based products? And that's why they've started to look towards that emerging market area, which has really benefited from that.

So again, this is one of my favorite charts. You can tell I'm in the right job here. But this really focuses on AI. One of the biggest questions that markets had last year was is this a bubble? And we're purely seeing the dot-com bubble happening again where everyone just invests in anything. Well, in 2000, it was with internet in the title. Last year, it was a concern that anything with AI in the title. But this chart shows the year on year earnings growth of "Magnificent 7" stocks. So they are, as you might expect, that top bar in the chart, which is a bright purple.

Now in comparison, if you look to the bar exactly to the right of that, that is what we call the S&P 493. Now, this isn't a whole new index. This is the S&P 500 with the "Magnificent 7" stripped out. So you can see the tangible difference of the earnings. So that's what we've been focusing on is actually the evidence of AI investment showing up in business spending, manufacturing activity, and broader economic growth.

I think that's why it's important not just to think of AI as a market story or theme, but actually as an economic story to what it's delivering elsewhere. Now, this doesn't mean there won't be setbacks and that AI is a sure win. However, expectations do remain very high, and we do believe that the benefits are going to extend beyond today's headline winners.

Now one thing we are seeing very clearly and I've touched upon it is that substantial investment in AI infrastructure. So companies are spending vast amounts on building data centers, chips, networks, computing capacity. So history suggests that major technological shifts often involve periods of overinvestment and underinvestment before they actually reach a balance. Now, this doesn't mean the theme is wrong. It simply means investors do need to be selective rather than, as I said, assuming that every company with AI in a press release is destined immediately for greatness.

But to move briefly away from AI, I want to just touch upon interest rates expectations. I know interest rates are one of those things that really do affect us in our personal lives. If, say, we are looking to renew our mortgages or looking to hold that cash of the best interest rate amongst it. So the interest rate environment also remains on the key drivers for the market.

Now the broad direction of travel, as you can see from this. And so just to annotate the bottom line there is years. And the left-hand side obviously is the overnight cash rate. So as you can see, the broad direction of travel is that rates will dropdown lower. But that yellow line just shows where the Iran conflict has disrupted this progress. So it's something we're watching very closely is how central banks are going to react to this because currently they're in what we call a wait and see mode, where they're trying to assess themselves, the own data from their economies to gauge how they should react.

So I want to tie all of that together that I've spoken through and talk through the current positioning in our portfolios and how we've been building them. And it's worth noting we actually created this slide in January, and we haven't adjusted it hugely since, which is reassuring to us we try not to make knee jerk reactions when the markets and the headlines seem to disagree with each other, which often is the way. So one thing I've touched upon, we do think we're going to see a continued equity market strength. We think there's the right economic environment. There's the correct level of fiscal stimulus. We're seeing positive signs in the actual fundamental results that companies are generating.

Now, we do have a particular tilt towards US equities. And that doesn't just mean "Magnificent 7." We are looking for a diverse US equity base. We also like Japanese equities-- anyone that follows Japanese politics, you'll be familiar with quite the level of corporate reform that that country has been focusing on, and that's been a very positive area for us.

The second theme is actually really focusing back to the collateral impact of the tariffs that were put into place last year and still feeling the effect of that which comes through in the main, in divergence, in monetary policy across economies. Now, that affects how we approach the fixed interest portion of our clients' portfolios. So currently we're a little bit overweight in UK bonds including gilts, which we do like occasionally, and we're slightly underweight in global bonds. So particularly Japanese corporate debt. And I think that's very interesting because you can see that we like the Japanese equities. We're less keen on the debt side, which if you think they don't work in correlation move in correlation, that does start to build a picture.

And then finally, currency and rates regime shift. So the US has been very open in their lack of willingness to underwrite global defense. But also the pressure they've put to move that dollar downwards, which a lot of investors were using as a safe haven, feeling that gold was somewhat overpriced at that time. So with that in mind, we tried to add some hedging into the portfolios.

Now, this isn't easing anything like a derivative or currency trading. It's using a collective equities fund that has hedging woven into it. And that just brings us to a dollar neutral stance because it's difficult and we like US equities and we're buying them in the dollar. We don't necessarily want exposure to the dollar itself. So this helps to neutralise that effect. We're also ever so slightly overweight in the Japanese yen because we've got that exposure through equities. That's how we build up that currency exposure. So that's where we are at the moment.

But what is our focus for the remainder of 2026? Well, the things that we're keeping a very close eye on is really, as I touched upon, the energy shock-- how it's going to impact growth, inflation, and interest rate policies. So that really slides into that next square markets are currently pricing in a central bank rate hike. But will this actually happen? It will be quite fascinating to see. And finally, we are expecting to see high AI expenditure in fiscal spending. And we do believe that will continue to drive some of that US growth.

But I think this is one of the main sides. I think it's very important and a very huge part of our job is focusing on what as an investor you can control and what you can't control. So the things outside our control really are the headlines-- elections, political events, oil prices, commodity markets, tariffs and trade policy, geopolitical conflicts. And really the hardest one, the market sentiment, which, as I said, can go in a very different direction than a rational person might think.

However, you do still have a lot of things within your control. So choosing that correct asset allocation, those risk parameters that suit your objectives, ensuring this is really our control, that diversification is very present in your investments, which given the dominance, "the Magnificent 7", can sometimes be harder to achieve if you're entering the market through these passives and you might imagine.

And costs. So keeping charges, fees, and transactions within a comfortable level that allows your portfolio to keep compounding. Tax efficiency. So using the correct wrappers, we call them, at the correct times. And finally, your own behavior. So staying disciplined, avoiding those knee jerk reactions, and actually adhering to a long-term financial plan. So thank you very much. I will pass back to Helen in case there are any questions at all.

HELEN PERRIN: Thanks, Ellie. Really interesting session. We have had a few questions coming through the Q&A. I see somebody tried to put their hand up there. If you could ask your questions in the Q&A. We have actually brought everybody in with microphones off and videos muted so-- that the other way around-- for privacy reasons.

If you could just pop them in the Q&A because we are recording the session as well. So we weren't sure if people would want to be asking questions live on a recording. OK, so first question, rather than around investing in AI, please could you give some opinion and guidance of using AI as an investment and planning advisor tool?

ELEANOR INGILBY: I think that's incredibly challenging. I think I'd call it robo advice as the term we use, and I think it does have a place for informing you as an individual and an investor and educating yourself on some of the things you might want to do. But we still see this with most of the AI programs. They do have an ability to hallucinate and to not get information entirely accurate. So I think it's a very useful tool for helping increase your own access and understanding. But I wouldn't rely on it fully and completely to produce an outcome that you then put your pension in or a lot of money into.

And I see this-- I was joking yesterday. I do quite enjoy having a look through Reddit occasionally. And obviously, we've seen a lot of-- I'm going to call them fascinating investment themes emerge from there, from Wall Street Bets and things such as shorting large investments. But I think there's yet to be a proven AI program that can invest as effectively as a group with, say, 10,000 global investment analysts, which is a very different party.

HELEN PERRIN: Yeah, I'd agree with that. I think AI has a place in making things more efficient in terms of giving advice and choosing investments, but I haven't yet seen something that's completely working as I would want it to work in place of financial planning or investment advice. If you track all the investment advice and portfolio management that you cover, how do your investment returns compare to a low-cost global equity tracker fund?

ELEANOR INGILBY: So it's really interesting. So a low-cost global equity tracker fund that would be what we call our risk rating of 7. So the highest risk that you can take. So it's purely equities. And your exposure to that is going to be quite still heavily weighted towards "the Magnificent 7", just to use the dominance in the market, but we do track it. So we track our equity component against the MSCI World, which is possibly the most passive and quickest way to approach it. And I would say we do relatively consistently outperform that element.

So we are pleased with that because that's not always an easy thing to achieve. But we can share. If anyone is interested, they can get in touch with Helen. And we do measure ourselves against something called the ARC benchmark, which I'm not sure whether you're familiar with. The ARC benchmark is a composite benchmark created by taking anonymised data from real life client performance from a variety of wealth managers.

You can see all the wealth managers that adhere to this on the ARC website. And what it does, it then creates a benchmark from that. And that's what we often find that clients want us to measure against is, yes, have we outperformed the markets, for example? But secondly, how we compare to other investment managers. So happy to share that if you approach Helen.

HELEN PERRIN: Yeah, so speak to me and/or we do have a QR code we can share if you want to book in to speak to an atomos financial planner. And so you can have an initial conversation around topics like that. If you're thinking about taking advice and you know what extra can atomos add over choosing an index tracker. So we will share that QR code and link as well. Just moving on to the next question, it appears that bonds are more risky than equities in recent years. Can you share any opinions on that?

ELEANOR INGILBY: I think that's such an interesting market trend we've seen, and it's changed the way we've spoken to clients as well because historically, a lower risk profile would have more fixed interest exposure. However, as you noted over the last couple of years, there seems to be more of a correlation between the two. And this is when we talk to clients about the risk of not taking risk to a certain extent. So we've actually started to weave in more alternatives positions into our portfolios. So those are assets that are neither equities nor fixed interest, but have different return profiles that are undiversified to both those elements to try and produce more resilience into it.

HELEN PERRIN: Great. So I was just looking for that QR code to share. And then the final question, "the 7 Magnificent" stocks. So "the Magnificent 7" you mentioned. Could you just tell us what those are?

ELEANOR INGILBY: Yeah, understanding, as I said, these are going to change quite clearly, I think, as time goes forward the latest acronym that I heard was mangoes, which is trying to include Spacex in them, but to list out 'Magnificent 7." So you've got Apple, Microsoft, Alphabet, which is obviously Google, Amazon, Meta, which is Facebook, NVIDIA and Tesla. But you'll find that quite a few analysts are quite cheeky. They will switch Tesla in and out and perhaps enter in other names such as Broadcom, which is another semiconductor chip creator.

So I will keep an eye on that to find out because that originally started-- everyone remembers started as being called the FANG stocks, F-A-N-G, which was Facebook, Amazon, Netflix, and Google. So this is a constantly changing acronym. And if the market likes one thing, it loves an acronym.

HELEN PERRIN: And I guess that goes back as well to the point you were making earlier around those are the current "Magnificent 7", but actually some of those companies that benefit hugely from those seven are perhaps the next best thing. But it's very hard to speculate on which particular ones will be the success story. So it's getting that balanced portfolio and making sure you are accessing that exposure, but in a risk controlled way.

ELEANOR INGILBY: Absolutely. It's worth noting we do a mixture of investing. So we do use some passive elements. We take what we call a smart beta approach. So that's a mixture of passive to save on costs where we are less specific on perhaps the outcome that we want, and then using those really active positions where we have much more of a view on what our concerns are in that area, and we try and blend all of that to keep your costs as low as possible.

HELEN PERRIN: And I've added the link in the Q&A if anybody wants to book in for a free initial conversation with an atomos financial planner, and they can talk you through some of those portfolio management aspects in terms of what atomos do, as well as the financial planning side or atomos do offer a portfolio management only service as well. So if you think your financial planning is OK, but actually you'd like some help on the investment side, you can reach out via that link as well and book in for an initial conversation. And we'll make sure we introduce you to the right person to have the right conversation for you.

Just checking if there are any more questions coming in. Doesn't look like it. So if not, thank you very much for attending this morning. We hope you found it useful. Have a lovely rest of the day. I did also put in the Q&A a link to our multi-employer webinar range. So look out for new dates coming on that. I think our next one is actually not until early September, when we'll be looking at saving investing over the short and long-term.

So again, covering some of those themes about-- for long-term investments, you need real growth. And for short-term investments, then cash does have a place, but there are some tax efficient cash options as well that we can look at, such as direct gilts are quite attractive for higher rate taxpayers at the moment in terms of the net yield to maturity over short-term gilts.

So we'll talk you through some of that in September. But any questions beforehand, as I say, looking for an intro session with atomos so you can book him for the WTW pension guidance service via Flexmart if you're looking for more of a strategy discussion rather than the potential for regulator advice or portfolio management. So lots of individual support out there. And we'll hopefully continue to help through this webinar series as well. So thank you very much for joining us. Have a lovely rest of the day, and hope to speak to you all soon.

[AUDIO LOGO]