Please find below our interim Investment Market Update as at 27th August 2021
Blue Sky Investment Market Update
Having made changes to some of our internal portfolios some 12 weeks ago, as an Investment Committee, it’s prudent to review the changes we made, good or bad. We are delighted to report that all our portfolios have performed very well over this period.
Before informing you of the actual performance, it’s worth reminding ourselves of the changes we made. They were broadly as follows:
- We increased the Sustainable elements in our portfolios
- We added more monies into Sustainable real estate which was a play on environmental issues whilst also being a good hedge against inflation
- For our Sapphire portfolios we increased the equity exposure in both UK and Europe
- In addition, we created a Thematic portfolio.
For the sake of this exercise, we will include both our externally managed and our internally managed portfolios. For comparison purposes we will focus on the ‘growth’ (medium to high risk) portfolios for the core holdings. The figures are from the 12th May 2021 to 26th August 2021.
- LGTV Growth +6.81%
- LGTV Sustainable Growth +10.12%
- Sapphire Growth +9.03%
- Infrastructure 3 +8.0%
- Momentum +7.54%
- Target +7.71%
- Thematic +13.27%
Figures from FE Analytics. Includes all fund fees but doesn’t include Blue Sky’s fees.
A comparison, although not a benchmark, is the performance of the FTSE 100 before any charges and without dividends. This index has delivered +1.72% over the same period. As this is a short-term view though, it does not mean a weaker performance is inferior. Statistics look different over varying periods.
We are pleased with the outcomes but are very aware that investment markets can rotate and what is the flavour now may not be in a couple of months’ time. We remain vigilant but all the same, pleasing progress.
Too much exuberance?
At this stage of the cycle, we have mentioned that we are likely to see an uptick in volatility across investment markets. It hasn’t happened yet, but it will come. I think it’s fair to say we are in a ‘sweet spot’ at the moment, with a global economic recover underway and huge stimuli supporting sentiment. Some, however, would argue that we have already moved away from the ‘sweet spot’ and we are now entering a period where there is a need to carefully address one’s risk vs reward. In other words, lower the potential for volatility.
I read in FT.com yesterday that a fund manager at T Rowe Price has substantially backed away from what he described as a “rich” US equity market. This reflects a nervousness among some investors concerning the lofty valuations that have become entrenched since markets rebounded forcefully from the pandemic lows of last year. David Giroux, who has run the Capital Appreciation fund since 2006, has cut the fund’s equity exposure down from about 70% at the market low of 2020 to the mid-50% level now, fearing that stocks are running too hot.
The blue-chip US S&P 500 has soared by almost a fifth this year, reaching a new all-time peak this week. Giroux’s strong reputation for timing market shifts means other investors are likely to take note.
Such moves reinforce our recent decisions to lower our US equity exposure. However, it is dangerous to generalise because amongst US equities there is a wide divergence of performance depending on what you are measuring. The US smaller companies index for example does not resonate with the performance of the S&P 500 which contains those big tech stocks.
Who’s top of the league?
This is not to do with the football but if it was, it doesn’t matter at this stage of the season. My team, Everton, are a case in point, as they were top early in the season last year, only to tumble down the table from the turn of the year.
The league table of vaccinations is probably a lot more interesting right now and, of course, the progress of the vaccination programme has a correlation with the outlook for economic growth and investment markets. I have to say I was quite surprised at these statistics which show Spain leading the way with 69% of the population fully vaccinated. The UK is 62%.
In the UK, 90% of adults (aged 16 or over) have had their first vaccine dose and 75% have had both doses. In the EU, after a slow start to vaccinate its population, the campaign has also turned into a success, particularly in Spain. The bloc, as a whole, has overtaken the US in terms of first and second doses per 100 people and is steadily approaching the UK. Again, you may remember us increasing our investment towards Europe at our last switch.
However, across developed economies the number of people getting their jabs is slowing every day. Unlike in developing countries this slowdown isn’t due to a lack of supply, but a lack of demand.
“The worst July since 1956”
In this crazy world we live in, it appears as though we are seeing more and more headlines suggesting the best or worst of something for X number of years. This time it’s the UK car industry.
This was the title of a report in Bloomberg this week.
UK car production plummeted last month to levels last seen 65 years ago as chip and staff shortages continued to wreak havoc in the automobile sector… no wonder the price of second-hand cars is so buoyant.
- What happened? Car makers made only 53,438 vehicles, down 38% from a year ago, the Society of Motor Manufacturers and Traders said. The same thing happened in June, when the industry has its second-worst showing for that month since 1953.
- What caused it? In addition to the chip shortage, car makers struggled with workers being “pinged” by the NHS contact-tracing app. While that may ease as self-isolation rules change, the global semiconductor shortage shows little sign of abating.
It appears that for every good positive story there is another suggesting that normal service is some way off. It is a very strange time indeed, but it further reinforces why it’s important to have an active and nimble investment strategy.
Talking about cars… Apparently, in the 24 Hours of Le Mans race in France next year, all the cars will be powered by 100% renewable fuel made in part from residues from the French wine industry. The fuel is made by Total and is thought that it would lead to at least a 65% reduction of carbon emissions.
It’s not always what it seems… When choosing our Sustainable strategies, we have repeatedly stated that extensive quality research is vital. Deutsche Bank are an example. The Bank’s former Head of Sustainability, according to Bloomberg, said the firm overstated how much it used Sustainable investing criteria to manage its assets. Reinforcement of why it’s important to have confidence in our external investment partners.
A longer script that normal this week, sorry!
It’s going to be wall to wall sunshine this weekend, so I hope you get out to enjoy it.
Gary Neild 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.