Wealth Adviser Newsletter 28.01.22

Partygate and political risk dominates

Our feature this week from Philippa Aylmer reports on key asset managers’ opinions on the likely impact of political risk on UK markets this year. Stuart Clark, portfolio manager at Quilter Investors warns investors to expect increased volatility in 2022.
"Should we see a leadership challenge or a general election then markets will naturally react to these events. And while the overall market impact may be minimal, investors should not rest on their laurels," says Clark. "The problem the UK has for investors is that while it looks cheap compared to the rest of the world, it is so for good reason. Political risk was already a threat for investors as a result of the fallout from the Brexit deal. Foreign investment has been lacking and should we see more uncertainty in Westminster then we should expect the UK to remain undervalued for some time to come yet."
In the light of recent developments, identifying risk tolerance seems to be more important than ever. Our In My Opinion this week has Dr Greg B Davies, Head of Behavioural Finance, Oxford Risk opining that the right level of risk for an investor to take depends, to some extent, on that investor’s balance sheet.
"The more an investor relies on investments to fund their life, the lower their capacity to take risk with that portfolio," he says. "A question we’re often asked by advisers is: 'How do I take into account my client’s risk tolerance changing?’ The short answer is that this is very rarely the case; and where it looks like it is, it’s usually a red flag for a faulty measurement methodology, the creation of unnecessary work for the adviser, and a poor investment outcome for the client."
Davies writes that risk tolerance, measured correctly, is a stable, long-term psychological trait. "Stability is a hallmark of psychometric traits – as opposed to states, or fleeting feelings, which may change every time someone’s circumstances do," he says.
Beverly Chandler, managing editor, Wealth Adviser

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