My Stocks and Shares ISA climbed 0.4% on Friday (5 June) while the global market fell 1.12%. And there’s a very simple explanation.
While the wider market has become concentrated in data centre stocks, my portfolio is still diversified. As a result, I’m in a better position to withstand certain shocks.
A time for everything
’Tis written in the book of Ecclesiastes:
“There is a time for everything, and a season for every activity under the heavens:
A time to be born and a time to die,
A time to plant and a time to uproot,
A time to kill and a time to heal,
A time to tear down and a time to heal,
A time to tear down and a time to build,
A time to mourn and a time to dance …”
It goes on – you get the idea.
It’s a reminder that different things work in different environments. And the same is true of the stock market.
Why did the market fall on Friday?
The latest jobs report from the US sent the stock market down on Friday. The US added 172,000 jobs, more than the 85,000 expected.
That’s a good thing in some ways. But not when one of the big concerns is inflation leading to higher interest rates.
More people in jobs means more buying power in the economy. But with supply fixed, that creates a risk of rising prices.
The assets most at risk are growth stocks. Higher interest rates decrease the present value of returns in the distant future.
The stock market
Right now, the global stock market is pretty concentrated. 64% of the FTSE All-World Index is US stocks and 35% is technology.
That means index funds are increasingly a bet on specific themes — most notably artificial intelligence (AI). But to some extent, that’s not what they’re supposed to be for.
A global index is supposed to provide some protection from specific risks. This, however, gets lost the more concentrated it becomes.
It might be that the best way for investors to do find some protection is by managing their own portfolios. And that’s what I’ve been doing.
Inflation protection
Shares in Bunzl (LSE:BNZL) climbed 4.86% last week. And the stock was higher after Friday’s US jobs report.
There are a few reasons for this. One is that a stronger economy in its largest market should boost demand for the firm’s products.
Bunzl distributes the things businesses use every day. So companies keeping more people in work is a positive sign.
In terms of inflation, the story is a bit more mixed. It can weigh on demand if its customers start to see weaker sales themselves.
On the plus side, Bunzl can often pass on the effect of higher costs. And if its customers do keep coming, it can result in higher revenues.
Being a good investor
Building a portfolio is about balance. There’s nothing wrong with AI stocks, but it’s always worth keeping an eye on other names as well.
These can offer protection in tougher environments. And this is why my Stocks and Shares ISA went up on Friday.
At 32% off its all-time highs, I think Bunzl is still worth a look. If inflation disrupts the AI trade, it could offer valuable protection.
Should you invest £5,000 in Bunzl Plc right now?
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Stephen Wright owns shares in Bunzl.
