Four times a year here at Fidelity we produce our Investment Outlook, bringing together the views of our in-house specialists on where markets are now and where they may be headed next.

With each new quarterly Outlook, we have asked you to put your question to the Outlook’s author, Tom Stevenson, and as time has gone on a trickle of questions has turned into a flood. Now the questions we receive from you can provide as much insight into investor sentiment as the expert opinion which comprise the Outlook itself.

The latest Outlook was published this week and once again you came up trumps. Working through those questions, a number of trends emerge. Here’s the three questions top of your agenda right now.

Is it time to abandon ‘value’ and invest by ‘themes’ instead?

This was asked by numerous investors in various ways, but all were driving at the same point: with the pandemic changing the world so fundamentally, will today’s ‘undervalued’ sectors bounce back in the way they always have before?

Buying companies which are undervalued by the market is about as fundamental to investing success as it’s possible to get, and it’s how many private and professional investors approach investing. The problem right now is that many companies, and whole sectors, have looked cheap (on the basis of their price versus their earnings, dividend yield or assets, for example) for a very long time - the market is not yet willing to believe that they can spring back.

Instead, it is the companies with reliably growing profits in defensive sectors which have continued to attract investor cash, even when their valuations are at historic highs. 

Given all that, investors are wondering if the pandemic now means some sectors will never recover their value, and whether a better plan is to look for those ‘themes’ which appear better equipped to deal with the post-pandemic world. Technology platforms, A.I., robotics and healthcare all featured in your questions.

It’s impossible to know for sure but, it would be foolish to abandon ‘value’ principles completely. The price you pay for a company is directly related to the return you can expect. Even a remarkable company with remarkable profits - and today’s tech giants fit that description - can be bad investments if the price is too high.

That said, we are in a period of incredible upheaval in markets and there will be extreme examples of winners and losers by the end of it. ‘Value’ will always have a place, but it must be filtered from the ‘value traps’, represented by companies that won’t ever be able to recover their pre-Covid place in the world.
I sold when the pandemic struck - when should I buy back in?

If there’s a house motto here at Fidelity, it’s probably ‘time in the market is better than timing the market’. We consistently warn against wholesale movements in or out of markets based on a binary view of where markets are headed. Some will get these gambles right but many others - like those asking this question - will not.

Selling at the start of the pandemic was understandable but the initial falls were so sudden that most of the damage had been done by the time investors could sell. The story since then has been of steady rises, albeit with volatility along the way. As so often happens, prices took the lift on the way down, but took the stairs on the way up. 

Those who sold out must at some point decide when to buy back in and that represents another risky decision. Much better to forget the current levels of markets and look to the long-term. Is this money you can afford to invest and keep invested? If it is, the day-to-day level of markets matters less.

It is not possible to say that those selling out at the start of the pandemic were wrong - they may be proved right in the long-run. But the fact they sold perhaps betrays an earlier mistake, which is to have been invested in amounts and at a level of risk with which they were not comfortable. When the fall came - admittedly a nasty fall - they lost their nerve and sold.

A qood reminder to keep your investing at levels you are truly comfortable with in the good times and bad.

How will a US election and rising political tensions hit markets?

Many of you wrote in to say that, while you had ridden the bull market in US shares these past few years, you had now become doubtful that the American market would continue to lead the way. In particular, the US response to coronavirus was viewed as being likely to add to already serious economic trouble, and with a contentious Presidential election unlikely to help.

More globally, the escalating war of words between China and its counterparts in the West is causing concern, and this was reflected in several of the questions we received.

All these are valid concerns, but in truth it is difficult to find any region right now which is immune to political risk. Here in the UK we still have our exit from the EU to navigate, something which is unlikely to be pain free in Europe either. The story in China may be getting more clouded, but investing there has always involved uncertainties for foreign investors.

It should be a reminder that a properly diversified portfolio - by region but also asset-type, market cap and sector - is the best way to prepare for uncertainty. 

Read the full report here.

Important information - The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.