Since the start of the year markets have demonstrated higher volatility, particularly certain sectors such as US technology shares. In this article we’ll run through what’s been happening, how we distinguish between volatility and permanent loss and how cautious investors can consider defensive strategies that have held up well amongst the volatile backdrop.     

“The stock market” is not a single entity that goes up or down in isolation. It’s made up of different sectors, themes and companies within the overall market – some gain and some decline, depending on the macro environment. We should also remember that many of the decliners will not be permanent losers. For the markets, volatility does not equate to permanent loss.

Amongst the uncertainty there have been plenty of gainers. Indeed, my article in this magazine from last November highlighted a number of prospective beneficiaries of inflation including Commodity ETFs, Value equities and Infrastructure ETFs. These have gone on to perform well, with some generating very strong returns amongst the general volatility.  

Later in this article we’ll run through a number of investment themes that have already performed well this year and might be of interest for cautious investors looking to gain exposure to the markets in a defensive manner.      

Volatility or permanent loss?
Investment risk can be explained in different ways. A classic measure of risk is volatility – i.e., how much the price of an asset swings around. This is how an IFA or wealth manager might define risk. For more technically minded readers, the mathematical measurement of volatility is the standard deviation of the asset’s returns.    
On this measure we could say crypto currencies are more volatile than equities which, in turn, are more volatile than vanilla BTL property.