Please find below our Investment Market Update as at 21st April 2020.
Blue Sky Investment Market Update
Book your place now, if you haven’t already done so!
A short reminder to book your place on our Virtual Seminar with Sanjay and Phoebe from LGT Vestra. On Wednesday 6th May at 10am, they will provide a balanced insight into what the future may look like both economically and financially, whilst also giving guidance on what looks attractive from an investment point of view.
Once you’ve clicked the link above, you will then receive an email with details of how to watch the seminar on Zoom. The event is scheduled to last 45 mins. If you have specific questions for myself or our guest speakers about the investment markets and the global economy, please send them to myself (email@example.com) by 12 noon and Tuesday 5th May.
If you know of family, friends or colleagues who may find this event useful, then please send their email address too, with your reservation, and we will send them the link and passwords inviting them to join us on Zoom.
There is a lot of interest and it promises to be a worthwhile listen.
The mood of the nation
I have been conducting a little experiment over the last week. I decided I was going to evaluate the news headlines across various platforms, financial and non-financial, and what struck me was the number of articles that were negative. “No surprise there” you are probably thinking? You would be correct as 87% of headlines had a negative disposition.
What was also evident was the way information is presented and how this was often spun to generate sensational headlines. However, on reading further, it is amazing how the same fact can be presented in two different ways. This obviously has implications because it can lead to very different conclusions. Of course, sensational headlines sell!
I understand that some people and families have had awful experiences, and some of the stories are terribly sad but most of us, thank goodness, have been shielded from the extremes of this virus. The way much of the news is framed is destructive, and sadly it is fuelling future headlines about mental illness and depression.
I have talked about the way much of the news is reported previously, but I am pleased to hear that many of you are zoning out, except for the daily updates on the virus. It is good for your health!
What we really need, in my opinion, is less forensic ‘picky’ journalism and instead an emphasis on delivering hope and optimism which would undoubtedly change the mood of the country.
A lesson from Mark Twain
Framing bias is a classic way of influencing people. It occurs when a decision is made on the way information is presented, as opposed to just the facts themselves. The same fact can be presented in two different ways which can lead to very different judgments or decision making.
Probably the most famous example of framing bias is Mark Twain’s story about Tom Sawyer whitewashing the fence. By framing the chore in positive terms, he got his friends to pay him for doing his work.
Framing bias is very evident in the current climate whether this be around our health, the economy or investments.
Emotion and reality
A few weeks ago, in the throes of the equity markets falling, I suggested that it might be worthwhile not looking at the value of your investment/pension portfolios and I know many of you took my advice. Whilst this was well intentioned, based on some recent client reviews, there is evidence that some clients are still rooted in the mindset of how awful their portfolio may look, despite my upbeat and optimistic updates of late. We have just had the best month for global equities in almost a decade!
Two clients in the last week were both delighted and relieved that most of their money is still intact. The negative news-flow that consumes them each day had skewed their thinking into believing that they had probably lost a great deal of money. This certainly is not the case.
Without meaning to get too deep, studies show that when a situation unfolds where there are many unknown factors, there is a high probability that investors make quick decisions about what’s happening, which in turn increases their susceptibility to framing bias.
This often leaves people anchored in negativity, when actually, things may not be as bad as they seem.
Equity markets surge
So, the news-flow has been awful, yet the equity markets have surged. Isn’t it funny how we hear more about the markets collapsing than we do about them rising. Did you also know that US equities posted their biggest monthly rally since 1987 (FT.com)?
Not read much about this in the press have we?
Since the 23rd March, the FTSE 100 has risen by 20.46% and the S&P 500 by 32.8% as of close of business on the 30th April 2020. This is terrific and reinforces how the investment markets are the first to react to any positivity. The problem for the general public is finding this positivity amid the fog.
The problem for those hesitating to invest, is that by the time we hear good reports about company earnings, the investment markets are likely to have risen significantly. Buy on the dips!
Yearly returns of our portfolios
Here is a snapshot from our portfolios. These figures are from 1st May 2019 to 1st May 2020 and include fund and platform charges:
- Blue Sky LGT Vestra Balanced = -1.97%
- Blue Sky LGT Vestra Sustainable Balanced = +0.53%
- Sapphire Balanced = -1.93%
- UK Infrastructure Portfolio = +0.78%
- Global Infrastructure Portfolio = +13.46% (launched 1st June 2019)
- Momentum = +4.94%
Incidentally, the FTSE 100 on a price basis has fallen over the same period by -20.45%
Latest news on the markets
As I write, the FTSE 100 has fallen by 5.8% over the last couple of days which highlights the short term fragility of the markets. Yet the reality is, it surged too quickly and has so far only fallen back to the levels of last week (Wednesday 22nd April).
It was always going to be choppy, but we are still a long way off what we saw in March!
The main reason for the recent pull back is due to weaker sentiment around corporate earnings.
Amazon warned that operating income in the 2nd quarter will be difficult to predict amongst the uncertainty and this led to their shares falling sharply. Apple also added fuel to the fire with regards to their decision to withhold guidance for the current quarter.
Without this guidance, the stock market is struggling to understand how to react and what the markets don’t like, is uncertainty.
As I have said before, it will be choppy but things aren’t always as bad as they appear!
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.