We’ve written this commentary assuming you have some experience of investing in stocks and shares. This means that although we have tried to write as much as possible in plain language, we may have used certain words or phrases that might not be familiar to anyone new to investing. If you don’t understand any part, please contact your adviser.
Zurich remains strong in turbulent times
We understand that customers may be concerned about the security of their investments given the current global market turmoil. We would like to take this opportunity to reassure you that Zurich remains a financially stable insurer with a strong track record. Zurich has been a leading insurance provider for over 100 years.
Our disciplined operating approach and continued strength combined with strong internal governance procedures ensures Zurich remains resilient despite the current market conditions. Zurich remains committed to providing competitive insurance solutions to meet changing needs in these turbulent times.
We offer a wide range of products and funds suitable for almost all investment objectives, market conditions and attitude to risk. It is important to find the right product and invest in the right funds, which depends on your investment objectives and attitude to risk. If either has changed, your adviser will review your product to make sure it continues to meet your needs. If you want to better understand where your money is invested, your adviser should be able to help you or you can find more information in the fund factsheets available online in our fund information section.
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Financial markets turmoil continues
The third quarter witnessed sharp falls in the world’s equity markets as the difficulties stemming from the global credit crunch intensified. Having started the period on a downbeat note, most major equity markets saw positive returns in August, as the sharp falls in commodity prices eased inflation concerns. Having reached an intra-day high of $147 a barrel in July, the oil price ended the quarter below $100.
However, September witnessed unprecedented events in financial markets. These included the US authorities’ rescue of mortgage giants Freddie Mac and Fannie Mae, the collapse of Lehman Brothers, the takeover of Merrill Lynch and the US government bail-out of AIG, the biggest US insurer. The shocks continued with the collapse of Washington Mutual, the biggest-ever US bank failure, and its takeover by JP Morgan, and the planned sale of Wachovia’s banking operations to Citigroup. The UK saw the proposed takeover of HBOS by Lloyds TSB and the nationalisation of Bradford & Bingley and sale of its savings business to Santander. The Cheshire and Derbyshire building societies were taken over by Nationwide. Europe saw the partial nationalisation of banking and insurance giant Fortis, and the bailouts of Germany’s Hypo Real Estate and Belgian/French bank Dexia.
At the heart of the problem is the US sub-prime mortgage crisis that began just over a year ago when increasing numbers of poorer homeowners began to default on their repayments amid falling US house prices. At the time, it was difficult to judge the scale of the problem and as the crisis grew, banks became increasingly reluctant to lend to one another, as they were unable to gauge the full extent of their respective liabilities. The ensuing lack of liquidity has added to the problems facing weakening economies. Growth in many western economies has ground to a halt and Ireland is already in recession.
The US government has directed huge sums towards supporting ailing US financial businesses, while the world’s central banks have pumped vast amounts into the global financial system to help commercial banks meet their short-term funding requirements. In late September, the US authorities proposed a $700bn Troubled Asset Relief Programme to help stabilise the US financial system.
In contrast to the turbulent conditions in world equity markets, government bonds enjoyed a positive quarter as investors’ heightened risk aversion led them to seek out safe havens. Additionally, government bonds benefited from the easing of inflationary pressures amid the weaker economic backdrop, which should give central banks greater scope to cut interest rates.
This table shows how different indices, representing different geographical regions, have performed over various time periods to 30 September 2008.
| |
1 yr |
2 yrs |
3 yrs |
4 yrs |
5 yrs |
10 yrs |
UK -
FTSE
All Share |
-22.25% |
-12.78% |
0.02% |
24.89% |
44.54% |
43.28% |
US -
S&P 500 |
-11.42% |
-5.96% |
-1.89% |
11.94% |
16.42% |
22.64% |
Euro -
FTSE
World Europe
ex UK |
-19.71% |
-3.55% |
15.03% |
49.42% |
72.73% |
74.76% |
Asia -
FTSE
World
Asia Pacific |
-21.27% |
-9.98% |
-2.00% |
30.17% |
37.08% |
91.81% |
We’ve sourced these index figures, in sterling terms, from Financial Express to 30 September 2008. The indices mentioned above are measures of the markets they represent. For example, The FTSE All-Share Index represents 98-99% of the UK market capitalisation. It is the aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices.
You shouldn’t take past performance as a guide to future performance or as the main or sole reason for deciding to invest. It may have been achieved in a more favourable economic period that may not happen again, and tax conditions are unlikely to be the same. We don’t guarantee the value of your investment and any income, both of which can go down as well as up.
A long-term commitment
We believe it’s important, where possible, to take a long-term view when investing. Looking back over the years, volatility has always been a feature of world stock markets, with each setback followed by a recovery – some taking longer than others. One of the best and most accepted ways to deal with volatility is to invest for the medium to long term – a period of at least five to ten years.
It’s important to invest in the right funds, and this depends on your investment objectives and attitude to risk. If either has changed, your adviser will help you review your investment to make sure it continues to meet your needs. Although we can’t give you investment advice, we do offer a wide range of funds suitable for almost all investment objectives and attitudes to risk.
We strongly recommend you speak to your adviser before making any changes to your plan.