Featherstone Q1 2021 investment review

Last week's inflation figure out of the US led to some downside volatility in global equity markets and the wealth management industry. The figure is up from 2.6% in March to 4.2%, the highest level in 13 years, leading to fears that the US will have to raise interest rates to combat this increase.

While this would be the traditional way of dealing with an inflation shock, we are not living in conventional times and the market's reaction to this seems to us simply like an excuse for investors to take a breath after a crazy twelve months.

Apart from the fact that this figure has a lag of six months and may now be irrelevant, it is many in the wealth management industry’s view that central banks are very unlikely to raise interest rates in the short term while the economy is so fragile and many voters are in very precarious financial positions. Furthermore, governments welcome inflation in order to decrease the amount of their debt in real terms.

Cryptocurrency & Blockchain

The financial media and investment management industry has become obsessed with Bitcoin to the extent that 'Bitcoin' has become a synonym for 'blockchain'; with the latter being the important theme to focus on as far as we are concerned. Focusing on Bitcoin obscures the bigger opportunity afforded by the use of blockchain technology in the years ahead.

Many well-known companies and others in wealth management have already embraced blockchain technology which makes it possible to improve their supply chain and data management (think Walmart, Visa, Pfizer and Siemens). Furthermore, 'DeFi' (short for 'decentralised finance') provides a variety of financial applications in blockchain, which are geared toward disrupting financial intermediaries. We see this as a huge disruptive growth area in a very early stage for the financial advice industry.

In March we bought into a Blockchain fund managed by First Trust. Their focus on blockchain, through the First Trust Innovative Tech Units ETF (BLOK), meets our requirements as wealth managers, to have a diversified approach and importantly, BLOK avoids investing in Bitcoin and cryptocurrency miners which have received criticism due to their negative environmental impact.