Please find below our Investment Market Update as at 12th May 2020.
Blue Sky Investment Market Update
“Change the way you look at things, and the things you look at change.”
This is a quote I really like from Wayne W Dyer, who was an internationally renowned author and speaker in the field of self-development. It’s a quote that reinforces my communications of late.
It is so easy to become embroiled in negativity. It’s so easy to fear the worst. It’s so easy not to look beyond the immediacy of the situation we find ourselves in.
There have been comparisons to the Great Depression… but this is nothing like it. There have been comparisons in some quarters of World War 2 but, having watched footage over the weekend, it is clearly far removed.
I’m not meaning to underestimate what has happened, but it’s important to look forward with optimism and there is a lot to be optimistic about!
Our virtual seminar
We held our first virtual seminar last week with Sanjay and Phoebe from LGT Vestra. I hope you managed to tune in. We had really great feedback and one person even proclaimed that Sanjay should be Prime Minister!
What Sanjay and Phoebe did brilliantly was contextualise what has been happening economically and financially, but also gave us a perspective of what may unfold moving forward.
As I was listening to them talk, I was reminded of how things can be taken in different ways. The headlines “dividends slashed for major company” sounds awful, yet financially, it makes sense. A company needs the money to stabilise the business through a tough time. Instead of shareholders panicking they should, instead, be grateful that their investment is being protected.
Repeated headlines like this, without balance, causes stress and anxiety. All those who contacted us after the seminar, without exception, thanked us for providing context and overwhelmingly, they said they felt much better after tuning in.
Change can be daunting but, managed properly, it can be the start of something really amazing.
This is the opening line on our website, and it could not be more apt. We’ve all had to change how we live. Not all good of course, but there are lots of uplifting stories about how this crisis has brought people together, both families, friends and colleagues.
There are also positive implications moving forward, some of which Sanjay and Phoebe touched on:
- Our work/life balances improve
- Employers will likely be more flexible
- Communicating via technology for all ages means we can keep in touch more effectively
- Business culture changes, leading to greater efficiencies
- Possible less hours spent commuting – a change of emphasis on how we use our time
- A greater awareness of our environment – we’ve seen the results of less pollution in the news
- Investment into sustainable and impact investing are likely to increase
- Companies may be more focussed on building cash reserves meaning many will be more robust
- Service and delivery will improve, and more automation should lead to efficiencies
- A greater focus on providing and sourcing goods locally
- There will be a huge investment in infrastructure – 10 years of austerity has left us wanting
- Governments have shown they can respond quickly when required
I know there are many downsides in retail, hospitality, the airline industry to name but a few, and undoubtedly there will be tax hikes in years to come, but there are certainly lots of positives too if we choose to see them.
Those companies with strong balance sheets who are lowly geared and have desirable cultures, are the ones most likely to prosper as we come out of this situation.
I even had to change the picture on our website!
I started this update talking about changing the way we look at things. I was looking at our website a few weeks back and I began to view it differently.
We used to have a picture of a guy stood on a jetty, looking out to sea, with a degree of contemplation. The colours were moody and reflective of someone considering their future. It seemed to portray what we wanted; for people to think ahead and plan for the future.
However, I looked at the picture the other day and in light of the current crisis, it seemed to reflect something morbid and sad. Change was required… so we got to it and now the website reflects a much more positive place, with more vibrant and uplifting images. Take a look and please do let me know what you think: https://www.blueskyfp.co.uk
What do we read into the rise in equities?
The amount of stimulus that has been pumped into the system by central banks and governments has been well documented and, off the back of this, equity markets have surged. The bond markets are inter-related, and their performance is a guide to how equity markets are likely to respond. The only problem with this renewed quantitative easing is that it has distorted what the bond markets are telling us about the likely direction of equities. The question being asked is “does this mean that equity prices are also distorted and skewed”?
Maybe this is the case and that this rally is merely a relief surge as we transition out of lockdown. There are many that believe that markets have risen too quickly. Goldman Sachs Group Inc have warned that investors have got ahead of themselves and the S&P could drop by up to 20% in the next 3 months. But of course, they may not! But what if they do?
I warned last Wednesday, when anchoring our virtual seminar, that it is all too easy to talk about markets in general terms. There are always winners and losers, and it’s about choosing the right sectors whilst at the same time having an eye on balancing risk and reward. The health and technology sectors have performed well and will likely go from strength to strength as we restructure out of this crisis. Likewise, as Sanjay and Phoebe commented; infrastructure and sustainable investments are likely to benefit from huge investment and changing attitudes.
Equities have risen steadily for the most part from the beginning of April and with the rally extending, the Nasdaq index (information technology) is now in positive territory for 2020!
We may indeed experience a pull-back in equity markets, but this will also present opportunities. Should this be a sharp retracement then expect further stimulus and perhaps some co-ordinated action from the developed nations.
We came out of the financial crisis in 2008-09 and we will come out of this. Sadly, some businesses will fall by the wayside and some will continue to struggle but we shouldn’t generalise from specific situations.
Onwards and upwards.
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.