Please find below our Investment Market Update as at 26th June 2020.
Blue Sky Investment Market Update
Cash is king… or is it?
I’ve just come off a call with Sanjay and Phoebe from LGT Vestra as we were conducting our quarterly review of the portfolios and markets. Whilst I will cover off the content of our review in my quarterly investment report in a couple of weeks’ time, I thought it worth sharing a few of the points discussed.
One statistic Sanjay gave me was that in the difficult period when most asset prices collapsed, ending the 23rd March, 35% of investors aged 65 and over liquidated their holdings. Ouch!! I say ‘ouch’ because they would have undoubtedly crystallised losses and since, stock-markets have surged. The problem for those who now have cash or indeed anyone who has had cash sat on the side-lines, is what do you do now?
Sanjay also said something interesting which we have seen evidence of; “the longer you hold cash, the more you box yourself into a corner.” In other words, the longer you stay in cash, the greater the likelihood is that you won’t do anything with it!
Waiting until the markets have stabilised, and everything is looking rosy, may take years. The problem then is that market prices will be much higher and by definition, face a greater chance of a correction.
The so called ‘easy money’ in the stock markets has largely disappeared as prices have risen. However, there is considerable merit in participating in this market recovery, especially with the stimulus committed by central banks. Interest rates are going to remain low for many years and with the bank base rate at 0.1% where are you going to get returns on your money?
There are lots of attractive opportunities
With the EU looking to launch an EU bond to the tune of €750bn and the proposed stimulus in the US of 1 trillion dollars, bonds look attractive for those looking for a steadier investment experience. LGT Vestra don’t see any big bond risks on the horizon.
Infrastructure, in harmony with Sustainability, is certainly the name of the game. Then we have Technology and Healthcare which are also intertwined as we expect considerable capital to be orientated towards Bio Tech.
What to avoid
LGT Vestra don’t like emerging markets in this climate as their economies are vulnerable to the dramatic impact of the COVID virus on a medical level, an infrastructure level too, but also because of their interdependence on the US.
The UK doesn’t look particularly attractive, especially in the large cap space, unless the Pound falls in value. The most attractive element within the UK market looks like the smaller company sector where there are some excellent innovative companies. It pays to be selective though.
End of week market update
Equity markets have been in negative territory this week although they are finishing off with a flourish with the FTSE 100 up by 1.6%. Bonds were once again the safe haven assets with index linked gilts delivering a 2% return for the week so far.
Although there is a degree of volatility in equity markets there seems to be a repeating pattern. Markets are ebbing and flowing with swings of up to 5% each week either way. The US market is the key in economic terms but fears over a second wave are holding back momentum.
Have a lovely weekend. Might be time to go to Bournemouth beach as it shouldn’t be too busy now rain is forecast!
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.