By Rob Burdett is head of multi-manager at Nedgroup Investments
Today is always a good day to invest for the long term. It sounds simple, perhaps even glib, in a week when markets are moving sharply on geopolitical headlines.
But it is based on facts, and I think it is worth unpacking what those facts actually tell us — because they have real implications for how investors should be talking to clients right now.
Long term thinking
Broadly speaking, if your client can think as far as seven years, they are almost always going to make money from a well-constructed multi-asset solution. They are going to beat inflation, and they are probably going to beat inflation by a meaningful margin at least 80% of the time. That is not a marketing line. It is what the data shows, across multiple market cycles and economic environments.
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Holding that in mind is, I think, the single most useful thing investors can do during periods of turbulence. Because the turbulence itself is entirely normal. Almost every single calendar year, we see a market correction of more than 10%.
In the UK market over the past 25 years, there have only been two or three years where that has not been the case. We should, by now, be used to it — and yet it always feels incredibly uncomfortable when it arrives.
60/40 under review
I try to think of corrections as the sharp frosts that bring on new growth. If you have money on the sidelines, it is usually a good time to invest. Buy low, sell high is a cliché precisely because it is so difficult to act on in the moment — human nature pulls us in exactly the wrong direction.
But if you can remember that the long term is going to work for you, and that short-term timing does not matter, it can help you stay invested, or even add to positions, in difficult markets.
See also: In a volatile world, diversification must go beyond 60/40
The more complex question right now is what a well-constructed portfolio actually looks like. We are at an interesting juncture, and I think the traditional 60/40 framework needs to be held under review.
When inflation is elevated, the negative correlation between equities and bonds — the relationship that makes 60/40 work as a smoothing mechanism — tends to break down.
Bonds and equities can move together in higher-inflation environments, which reduces the diversification benefit you are relying on.
Inflation
Central to all of this, and everything else, is the inflation question. And my view is inflation is here to stay in some form. What happened in 2022, when rates rose sharply, was not simply a post-Covid anomaly. It brought to an end a 17-year period since the credit crunch during which we had artificially low rates, near-zero inflation, and in some government bond markets, deflation.
The norm of the previous 50 years — some inflation, a real cost of borrowing — is back. We are in that era again.
If that is your starting point, the portfolio implications follow. Equities remain the core. They have a strong record of protecting real returns over the medium term precisely because companies can pass through price increases and, where well-run, become more efficient.
But within fixed income, I think floating rate debt deserves attention. With rate cut expectations diminishing and real yields creeping up, floating rate bonds offer exposure to those higher actual yields while providing a degree of immunisation against interest rate duration risk.
Many strategic bond funds already carry this exposure; there are also specialist funds worth considering. Infrastructure — available in both equity and debt form — is another area offering reliable long-term returns backed by government cash flows, even if it can be buffeted by short-term market volatility.
Active
And for investors thinking about manager selection, I would say this is a genuinely better environment for active management than we have seen for over a decade.
When debt had no meaningful cost, creative destruction stalled. Weak companies could simply borrow more and carry on, even when their competitors were demonstrably better.
See also: IA: Inflows jump to £2.4bn as active funds beat trackers
That era is finished. The restoration of a real cost of capital means that well-run companies pull away from their peers — and that is exactly when skilled active managers can demonstrate what they are capable of.
The headwinds that worked against active management for 15 years have been removed.
Conclusion
None of this makes the current environment easy.
Geopolitics is genuinely difficult to analyse; even tracking stated policy positions closely will leave you wrong most of the time. But volatility, however uncomfortable, has historically been the entry point for the returns that follow.
The advice I would give clients — and the principle I keep returning to myself — is the oldest one in investing: time in the markets, not timing the markets.
