Russia invades Ukraine and stocks tumble – what does it mean for the portfolios?

Attributed to Nathan Mayer Rothschild during the Napoleonic wars, it’s pertinent to consider the above statement at the current time as Russia invades Ukraine and stock markets plunge – at the time of writing the UK stock market is down 3%.

But how have wars really affected stock markets?

Research from LPL Financial indicates that stocks have largely shrugged off past geopolitical conflicts. “As serious as this escalation is, previous experiences have indicated it may be unlikely to have a material impact on U.S. economic fundamentals or corporate profits,” said LPL Financial Chief Investment Strategist John Lynch.

The table below, courtesy of LPL Financial, summarises the stock market reaction to major geopolitical events going back to the Pearl Harbor Attack of 1941.

Iraq’s Invasion of Kuwait in 1990 offers an interesting guide and resulted in a 16.9% total drawdown in the S&P 500 Index over the course of 71 days; it subsequently took 189 days to recover.

However, history tells us that it’s the periods of uncertainty, such as those experienced over recent weeks, when stocks suffer the most.

In 2015, researchers at the Swiss Finance Institute looked at U.S. military conflicts after World War II and found that in cases when there is a pre-war phase, an increase in the war likelihood tends to decrease stock prices, but the ultimate outbreak of a war increases them. However, in cases when a war starts as a surprise, the outbreak of a war decreases stock prices. They called this phenomenon “the war puzzle” and said there is no clear explanation why stocks increase significantly once war breaks out after a prelude.

Similarly, Mark Armbruster, the president of Armbruster Capital Management, studied the period from 1926 through July 2013 and found that stock market volatility was actually lower during periods of war. “Intuitively, one would expect the uncertainty of the geopolitical environment to spill over into the stock market. However, that has not been the case, except during the Gulf War when volatility was roughly in line with the historical average,” he said.

“Part of the reason for the calm may lie in the changing structure of global oil markets and how the U.S. economy has become less vulnerable to energy price swings,” said JPMorgan Funds chief global strategist David Kelly in a note. “Part of the reason may be purely psychological. Today’s investors have seen the stock market recover from both 9/11 and the Great Financial Crisis, arguably the greatest geopolitical and economic shocks of our time. This makes it easier for investors to shrug off other events.”

A conflict with Russia can also cause volatile oil markets, as Russia is a key producer of crude oil and natural gas, with pipelines feeding many parts of Europe. If Russia were to close the taps, or have its oil infrastructure damaged, it could lead to higher energy prices – the oil price has now risen above $100 a barrel for first time since 2014. Interruptions to the ports around the Black and Baltic Seas could also create even bigger shipping headaches and lead to food inflation as grains and other staples remain stuck at sea.

What does this mean for your portfolio?

The uncertainty of recent weeks has already brought a sharp sell-off in share prices, even before today’s events. The S&P500 index, which all other markets generally follow, is already 12% down on the highs hit at the beginning of the year. The main UK stock market has fared somewhat better in the short term and is only 5% lower, although that should be considered in the context of it not going anywhere over the past 5 years, while the S&P500 has climbed 79%, even after recent falls.

As we would expect, smaller companies and notably growth companies on AIM, have fared worst of all, with the AIM Index down 23% from the highs hit at the beginning of September 2021 and 18% in the quarter to date, with the latter broadly in-line with our AIM portfolios.

Much of this fall is down to inflationary fears and the prospect of a rise in interest rates, with so-called ‘growth stocks’, impacted more than old-economy stocks and news of the invasion impacting things further.  As we have commented previously, valuations of some of the earlier-stage and more speculative companies of AIM have also looked somewhat overheated for a while and a pull-back was long overdue.

In the short-term, this has little or nothing to do with companies results or indeed their prospects, it’s simply a matter of general sentiment, which sees small sellers of less liquid smaller companies materially impact share prices, in the absence of buyers.

At times like this the best course of action, which we have followed steadfastly since our founding in 2004, is to sit patiently and wait for the opportunities to arise, as they surely will and, in some cases, already have.

We remain comfortable with our portfolio companies, which remain good businesses (whatever the stock market may currently imply) and set to deliver strong returns to shareholders over the coming years.

While the plunging stock market might be a concern, there are clearly far more meaningful consequences of war and our hearts go out to the people of Ukraine at this terrible time.

Fundamental Asset Management




Volatility brings Opportunity to AIM IHT planning investors

Equities in general continue to be weak and volatile as investors weighed mostly positive US earnings reports against the threat of rising interest rates.

Last week, the BoE’s monetary policy committee voted to increase the base interest rate by 25 basis points to 0.5%. This marked the first back-to-back rate hike since 2004 and came after data revealed UK inflation surged to a 30-year high in December amid rising energy costs and ongoing supply chain issues. The BoE also raised its inflation forecast to an April peak of 7.25%, which would be the highest since 1991.

What does this mean for AIM?

Global stock markets are led by the US, with the volatility experienced in larger growth companies felt to an even greater extent by smaller ones. Consequently, this has brought heightened volatility to AIM, London’s growth market, notwithstanding news and results, with the AIM index down around 11% for the year to date.

At the end of January 2022 there were 845 companies on AIM, with the total market value £134 billion. 

AIM is a market with many growth focussed and successful businesses at the higher end but, given its smaller company start-up nature, it is also a market with companies yet to come into their own and even others which are yet to make a profit. In 2021 AIM welcomed 70 newcomers coming from a broad range of sectors with market capitalisations extending up to £1 billion.

AIM is a stock pickers market which is clear from the consistently strong performance made by AIM portfolio managers in the space.

Over the 5 years to end December 2021 the AIM index had risen 41% while the main UK stock market was only 7.5% higher. This suggests that UK investors had a better chance of outperforming by focusing on companies on AIM, as opposed to the UK main market, and also ignores the added potential benefit from Inheritance Tax savings. It will be interesting to see how the next 5 years work out.

At the end of 2021 30 AIM companies were valued at more than £1 billion each.

Over recent weeks, results and updates from AIM companies within our AIM Inheritance Tax planning universe have, with a few rare exceptions, been overwhelmingly positive, although share price declines would suggest otherwise.

You can find out more about the benefits of investing in AIM for IHT planning purposes in our free report available from the link here.

Our AIM IHT portfolio companies are well-established, highly profitable and cash generative and have excellent growth prospects – our latest fact sheets, available from our Document Library here, provide examples of some of these.

While inflationary fears and interest rate rises are upper most in some commentator’s minds, our AIM portfolio stocks are well-placed to maintain their growth, whatever the economic climate, having already proven themselves through challenging economic conditions over the last couple of decades.

At times like these there is nowhere to hide and our investing policy, followed consistently since our inception in 2004, is to ‘wait for the storm to blow over’.

If you want to hear more about AIM and its Inheritance Tax planning benefits, please watch our recent webinar here where we consider what 2022 might have in store for AIM and whether the compelling tax reliefs might be at risk.

You can access the webinar from our Educational Webinars page here or by going to the Fundamental Asset Management Brighttalk channel here. You will need to register on the Brighttalk platform, but registration is free.


As is so often the case during periods of irrational stock market selling, good companies are thrown out with the bad. So, for those with excess cash on the sidelines, the current AIM sell-off could present a good opportunity to buy into some excellent AIM companies at far more modest valuations.

It is worth remembering that from the middle of February to the middle of March 2020, during the early stages of the pandemic, AIM fell 36%, only to finish the year as a whole 20% up on where it had started, eclipsing the UK main stock market which remained 12% down over the course of the year – AIM companies offer plenty of volatility but also plenty of opportunity, as 2020 illustrated!

If you would like to talk to our portfolio managers about their curent thoughts on AIM, please contact Jonathan Bramall on 01923 713894 or email [email protected]

Our other popular educational webinars include:

All you need to know about investing in AIM for Inheritance Tax (Aug 2020)


The Truth about Risk in AIM (Sept 2020)

Fundamental Asset Management