What advisers are telling clients about Ukraine

The invasion of Ukraine and the escalation of Russian troops to a state of nuclear readiness has sent markets into flight mode, but for the majority of advisers, the message is to stay calm and carry on.

This is despite a stark move to defensive positions for one investment adviser - Brian Dennehy of Dennehy Weller, who is advocating for high cash positions, telling FTAdviser that "all other positions are fluff".

On February 24, global markets were shaken in reaction to Russia launching a full assault. As reported by FTAdviser, the EuroStoxx fell more than 5 per cent, the FTSE 100 dropped just over 2 per cent and the Vix volatility index soared to nearly 30 per cent.

But for Chris Daems, owner of Cervello Financial Planning, while the "tragedy in Ukraine" will have a "short-term impact on markets", he believes clients should stay calm.

We are certainly not dashing for cash, or gold, or cryptos.Liversidge

In his latest client newsletter, he wrote: "If you’re a client of mine, you would have heard me banging this drum for some time. So, I’m sorry I’m going to repeat this but it’s an important message.

"Part of the value we add is making sure we remind you of what’s important and this includes every now and again reminding you that 'This too shall pass'."

In short, he said clients should "do nothing" to react to the current volatility, adding: "I’ve worked as a financial adviser and planner for over 20 years and have run my own business for over a decade. In this period our world has been impacted by some pretty momentous events.

"Now, if you’re a client of mine we will have already had a decent in-depth conversation about risk, volatility and making sure you’re comfortable when the inevitable ups and downs occur.

"We’re currently in one of these periods of short-term volatility but it’s important to be clear: your financial plan should always be focused on the best longer term strategic decisions.

"The portfolios we recommend are designed to do that. The worst thing you can do is make any changes when the world is in flux."

His comments were echoed by those of Yorkshire-based Neil Liversidge, principal of West Riding Financial Solutions. 

There is no historical precedent for this mix of market vulnerability.Dennehy

He said: "These events are horrible, in humanitarian terms, and a setback in humanity’s long, zigzagging and sometimes retreating march from barbarism to civilisation.

"Realistically, there is little each of us can do as individuals, save being prepared for whatever sacrifices events demand of us. We do not know yet what those will be, but higher prices, higher taxes and lower living standards are a fair bet.

"One thing we can all do, however, is staying calm to avoid financial self-harming."

Philip Hanley, director at Philip James Financial Services, took a similar view. 

He told clients: "Share prices the world have been falling since the beginning of the year for reasons other than Putin and Ukraine.

"It’s inflation, rising interest rates and the possibility that governments might not pump as much money into their economies as a result, that's been worrying the money men. 

"The view of fund managers is still that investments will recover this year. The money coming out of shares has to go somewhere, and if you're in medium risk funds, that 'somewhere' has already cushioned you from the worst.

"What goes down does go up again if you hang on in there, which, of course, is our advice."

Cash converter

But one adviser who is urging a flight to cash is Brian Dennehy, who was quoted in the national press at the weekend (February 26) stating that he recommended a shift to 50 per cent cash as a defensive position. 

Talking to FTAdviser Monday (28 February), Denney explained his positioning: "Most of the commentators trot out the same stuff that they have been programmed to say for years.

"I won’t go into detail with that critique, but the investment industry generally is too full of cheerleaders, and this is dangerous for clients and independent advisers alike.

"Advisers are key in our industry as the great majority really care about their clients. They must think independently in times such as this, and not be seduced by wider industry complacency built on a 40 year bull market, and no experience of a secular bear market."

He said his shift to defensive investments was not just about the war in Ukraine but a "mix of dangerous cross-currents for which I know of no precedent in financial history".

Dennehy listed these, stating that before the pandemic hit markets in February 2000, these five factors already existed:

• Stock market valuation bubble in the US.
• Investor mania, centred on the US but also global.
• Global debt mountain, of uniquely poor quality.
• A 33-year policy error supporting the stock market in the US
• A 10-year policy error, emergency rates/quantitative easing, in the US and globally.

He said: "The last two are primarily errors of the US central bank, the Federal Reserve, and then kept feeding the first three elements. Investor complacency grew and grew, as did that of the investment industry.

"Each of these five was unique in scale. Combined, there is no historical precedent for this mix of market vulnerability. 

"This vulnerability is like the avalanche-prone snowy slope. We just await the final snowflake – albeit of unknown timing."

Added to this is the pandemic, the rising cost of living, the energy crisis and now the war. 

Dennehy added: "It is a matter of simple risk and reward. The risk is down 50-80 per cent for the pivotal US stock market. In contrast, the immediate reward for staying invested is a few per cent of upside.

"The decision is not rocket science.

"Last but not least, the definition of a short-term safe haven is one which is guaranteed to not go down when the stock market goes down. There is only one: cash. All other options are fluff."

What goes down does go up again if you hang on in there.Hanley

But Liversidge told clients: "Linda and I, with our own pension fund and other investments, are in the market.

"We are holding shares in companies worldwide, just like you. We are certainly not dashing for cash, or gold, or cryptos. The same goes for our colleagues.

"During the ‘Covid-19 crash’ our personal pension portfolio had dropped in value by £80,000 at its worst point. It wasn’t a problem. We didn’t flap. We knew that markets would recover.

"We stood back and took a long cool look. That accelerated our portfolio’s recovery, just as it accelerated the recovery of clients’ own portfolios."

Doomsday Clock

In January this year, the science and security board Bulletin of the Atomic Scientists, writing on behalf of The Science and Security Board, said the Doomsday Clock had been set at 100 seconds to midnight.

Founded in 1945 by Albert Einstein and University of Chicago scientists, the Bulletin of the Atomic Scientists created the Doomsday Clock in 1947 using the imagery of midnight to represent an apocalyptic scenario, and the contemporary idiom of nuclear explosion (countdown to zero) to convey threats to humanity and the planet. 

In January, the Bulletin wrote: "Without swift and focused action, truly catastrophic events—events that could end civilisation as we know it—are more likely.

"When the Clock stands at 100 seconds to midnight, we are all threatened. The moment is both perilous and unsustainable, and the time to act is now."

simoney.kyriakou@ft.com