Please find below our Investment Market Update as at 18th September 2020.
Blue Sky Investment Market Update
General market conditions
There is no doubt that there are increased fears over a second wave and concerns over a possible global economic slowdown. Real reasons to be concerned of course, but it is highly unlikely that we will see any second wave creating a blanket lockdown as we had before. However, uncertainty is heightened.
Bloomberg Opinion stated this morning that inflows from retail investors have been shrinking to a narrow set of specific companies. A concentration risk for sure and we have seen the dangers of chasing the likes of Apple and Tesla over the last couple of weeks. Long term, we don’t think there will be an issue with such stocks but in the short term, such elevated valuations will need to be supported by significant improvement in fundamentals.
The dirty tricks campaigns in the US has been taken up a notch this week with claims and counter claims from both parties. The political uncertainty is undoubtedly hampering US policy and the delivery of monetary support. The sooner this is over, the better!
Dispersion between companies and sectors
We received a prudent update from LGT Vestra recently and amongst other matters, they commented on the dispersion between companies and sectors.
“As has been already demonstrated through earnings data, companies that can still grow and have strong balance sheets, have performed well while others have suffered long lasting damage. This leads to massive dispersion of returns in geographic, sectoral and even between companies in the same sector.
We expect the dispersion of returns to continue. As we move into the final quarter of the year, there are a number of events that culminate around the end of October, which may give added impetus to short-term volatility in markets. As the winter begins, we could see a second wave in the pandemic or a vaccine. Brexit trade negotiations could end with no deal or a new trade deal, and the US election could see a change of leadership”.
In the eight months since the UK entered into the transition period, there appears to have been no movement on either side on issues such as fisheries, workers’ rights and regulatory alignment. For any new treaty to be ratified, it needs to be concluded by the end of October.
The impact of the pandemic has of course been huge, and the fall out has dwarfed any fears over the potential short term economic damage around leaving the EU. The pound has been stronger than the US dollar and held up well against the euro, however, it has come under pressure reflecting nervousness by investors that the UK ends up with a ‘no deal’.
Joe Biden leads Trump in the polls, but the gap is narrowing as Trump appears to be gaining ground in key states. Trump could still win the Electoral College without winning the popular vote, as he did last time. Biden’s proposed tax increases are regarded as less business friendly, however, a more stable relationship with China could be good for global trade. The election is likely to see a ferocious and divisive campaign, which may make getting further fiscal packages agreed, ahead of the election, difficult. Equally, no one wants to take the blame for a lack of action, it is in both sides’ interests to get a deal done.
The Federal Reserve, by changing the way it targets inflation, has given itself more flexibility to take action but their powers are limited, and fiscal action is now a must.
Volatility ahead but don’t try and time the markets
Trying to time the markets over a short period can be fraught and damaging.
It’s important to state that although the portfolios will of course respond to market sentiment, investing into themes like sustainability have created more resilience and robustness in times of stress. Remember, we are more focused on the medium to long term. Furthermore, appropriate changes have and are being made across portfolios to smooth out volatility.
It’s not just about the big four
Given how much the prices of the FANG stocks have risen in a very short time period, it is not a surprise to see a correction. LGT Vestra do not believe it will culminate in a longer term trend.
They commentated that the ‘tech’ industry is much greater than the four FANG companies, and it would be a gross injustice to reduce the sector to simply these dominant four names. There is a huge opportunity to advance sustainable growth and development through the technology industry. This includes areas such as battery technology, the semiconductors that are utilised in everything from photovoltaic solar panels to laser technology, and sensor technology vital to sophisticated recycling systems. The sustainable portfolios with LGT Vestra have exposure to these sectors through the environmental pillars and underlying themes.
Performance of LGTV sustainable portfolios
The performance in the sustainable space particularly, has been strong with the portfolios generally outperforming the ARC and IA benchmarks over most periods. The sustainable portfolios’ international quality growth bias and the higher weighting towards technology, healthcare and consumer defensive stocks has benefited portfolio performance this year. The addition of credit during the sell-off has also contributed to the outperformance.
|Total return (last month end)
|IA Mixed Investment 0-35% Shares
|IA Mixed Investment 20-60% Shares
|IA Mixed Investment 40-85% Shares
|ARC Cautious PCI TR GBP
|ARC Balanced Asset PCI TR GBP
|ARC Steady Growth PCI TR GBP
|ARC Equity Risk PCI TR GBP
Have a lovely weekend
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.