Please find below our Investment Market Update as at 2nd October 2020.
Blue Sky Investment Market Update
It’s all happening in the US!
It seems a bit bizarre that the No 1 global economic powerhouse can only deliver Trump and Biden as Presidential candidates! As usual, I’m not going to air any political views but to my mind, the Presidential debate showcased nothing for US citizens to be proud of.
There will be many twists and turns over the next month, with the latest being that Trump and his wife have tested positive for Covid. His twitter engagements may just increase somewhat as he’s self-isolated, stoking the fire of controversy even more. Watch out!
What will the candidates deliver if they are elected?
LGT Vestra gave me a good summary recently, which I thought I would share with you.
If Biden wins the election, he is expected to repeal some of the business-friendly tax cuts that Trump enacted in 2017. Biden is also expected to have sizeable $2 trillion infrastructure spend planned with much of it earmarked for green projects. On foreign policy, while Biden is expected to be less hawkish than Trump towards China, the bipartisan support for measures to bring China into line makes it difficult for Biden to completely defuse the situation.
If Trump were to win the election, he will likely keep the Senate in Republican control. Trump’s priorities for a second term would include additional tax cuts/reforms, further deregulation with regards to energy, finance and transport. As well as this, there is likely to be higher spending on defence and a tough stance with regards to China on trade and national security issues. Trump may also take the same approach with Europe with regards to trade issues. The ACA court case may also require the Trump Administration to propose a new health care plan. Andrew Olmem, who recently stepped down from his role at the White House on the National Economic Council, also indicated that Trump wants to implement a substantial infrastructure plan in his second term.
Stock market implications
Either way, the election result is likely to be very close. However, we agree with LGT Vestra that we don’t believe now is the time to reduce exposure to US equities.
The US remains the market that is considered the home to the highest quality companies that have both held up well during this turbulent time, and whom we believe can sustainably compound growth over the longer term. It is these high-quality growth companies, with robust balance sheets in less economically sensitive areas, that have generally outperformed the market, and for which we continue to have a preference.
Many have the ability to come out of this global crisis stronger, with fewer competitors and the ability to use their cash for tactical Mergers and Acquisitions (M&A). However, it is important to stress that certain US stocks have become very expensive, and recent market moves may reflect a degree of correction in some of these names. Technology stocks being a case in point.
Timing the markets
Anyone who has run their own share portfolio knows how difficult this can be!
All our readers know this I’m sure, but I just want to reinforce Blue Sky’s strategy; we are not traders, we are not stockbrokers, we are wealth management advisers and planners. This means we are looking over the medium to long-term, albeit with one eye on the near term.
Chopping and changing holdings in the fund management space can manifest in missing out on some short-term movements, both on the upside and downside.
Themes dominating our thinking
Our strategy is very ‘theme orientated’ and we are pleased to say this is working well across the portfolios.
We all know that equity markets recovered strongly after the 23rd March, but what about the last 3 months? A time when some sectors of the market have stalled in their recovery due to structural problems, weak supply chains, government restrictions and fears of a further economic slowdown.
As we have just ended the third quarter of the year, we thought it prudent to show the performance figures for a selection of portfolios over the last 3 months, up to 2nd October 2020.
Please be aware that the portfolios embrace different risk approaches and shouldn’t automatically be compared with one another. These figures are for reference.
One further note; the performance figures provided exclude any platform and advisory fees but do include fund management fees.
Blue Sky LGT Vestra Balanced Portfolio: +3.56%
Blue Sky LGT Vestra Sustainable Balanced Portfolio: +5.32%
Blue Sky Sapphire Balanced Portfolio: +2.75%
Blue Sky Infrastructure 2 Portfolio (50-50 mix of UK & Global): +5.83%
Blue Sky Momentum Portfolio: +6.99%
FTSE 100 (price only): -4.7%
Despite the news flow, there are feelings of improved optimism about the global economy from an economic standpoint. Unemployment figures in the US are better than expected and this has been mirrored across many developed countries. Yes, there are variances in support measures that skew these figures but generally, the results have been better than expected.
Consumer confidence indexes have also been better than expected fuelled by many having more money in their pockets as they haven’t been spending.
Asia, as a block, is now performing well and it would appear its business as normal… well nearly. Wuhan has now opened for International flights, and retail sales in China for September 2020 matched the same month a year ago.
Sailing through choppy waters
The key from an investment management point of view is to avoid the bombed-out sectors which are attracting all the headlines. Companies with good strong balance sheets and stable earning forecasts are where we want to be at the moment.
Certainly, some sectors have got ahead of themselves at the riskier end of the spectrum and it is in these areas where we might see a sharp short-term pull back.
It’s going to be choppy for a while but we will continue to steer the Blue Sky investment ship to ensure a smooth course wherever possible.
Have a good weekend, and try to keep dry!
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.