Please find below our Investment Market Update as at 14th July 2020.
Blue Sky Investment Market Update
Last chance to register
Tomorrow, 15th July at 11am, we are hosting our 30 min Webinar with Foresight who are specialists in infrastructure investing. If you haven’t already registered for this event, I can assure you it’ll be worth it. It’s an opportunity to learn about a sector which is attracting huge amounts of money and is being supported by governments around the world.
Email firstname.lastname@example.org to reserve your space.
Where do the markets go from here?
Investment market sentiment is quite weak at the moment with outbreaks of the virus popping up all over the world. The question is, can it be controlled and isolated to avoid further constraints and lockdown measures?
Equities have posted gains over the last month at a time when the performance of bonds has been sanguine. Gold being the beneficiary of yet more uncertainty.
There are wide ranging opinions on where markets go from here but a surge either way wouldn’t be a surprise. Having a small amount of cash on the side-lines within portfolios seems a sensible play, as does an exposure to assets which are designed to give steady inflation linked returns, particularly if they are underpinned by government support. This is why we continue to favour infrastructure and why we are hosting the webinar tomorrow. The Foresight UK Infrastructure fund produces a yield of 5% and Foresight believe this will continue to be delivered, at a time when dividends are being reduced by many companies.
Our view is that it’s not the time to be taking on board increased risks within the portfolios and instead, we are seeking gradual rises in asset prices through a diversified approach. Of course, as the picture becomes clearer there will be opportunities, although I think we are going to live with heightened levels of uncertainty for some time. However, we can’t ignore the possibilities of further rounds of stimulus to support equity markets.
Whilst dividend cuts are bad news for those relying on pay outs to supplement their income, in some ways it can be seen as good news as the respective companies are trying to protect their balance sheets. The longer the pandemic goes on, the greater the likelihood that these dividend cuts will stay in place.
In the FTSE 100, 48 companies as of 1st July 2020 have cut, deferred or cancelled payments. However, there are a significant amount of companies who are expected to increase their dividends. On saying this, it has to be borne in mind that some of the largest historic dividend payers are those that have attracted investors in huge numbers, and it is these very stocks which have seen dividends cut by the biggest percentage. The figures show that just 10% of firms are expected to generate just over half of the FTSE 100 remaining payments in 2020, while just 20 stocks are forecast to pay three quarters of the total according to Money Observer.
A concentrated risk, which frankly we wish to avoid.
Not looking good for the UK
Figures show that the UK economy grew by just 1.8% in May according to the Office for National Statistics. For many economists, this was a slower than expected recovery from the depths of the coronavirus crisis. Again, some context is required in that the figure was much better than the drop of 20.4% seen in April. Overall, the monthly gross domestic product reduced in March and April by 24.5% compared with February 2020.
This follows last month’s report from the Organisation of Economic Co-operation and Development that stated the UK economy will contract by 11.5% this year, the biggest decline expected amongst its 37 members. On Friday of last week, the ratings agency, Moody’s, said that the UK is likely to face the steepest downturn this year across the G20 nations, partly due to Brexit.
Pretty gloomy stuff, although don’t be surprised if we are reporting on better than expected figures in 2-3 months’ time!
However, you’ll be pleased to know that across our portfolios, our exposure to UK companies has been reduced in favour of a global companies.
Have a good week and please try and join us for the Webinar tomorrow.
Gary and the Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.