Quarterly Investment Newsletter Summer 2020

Fri 10 Jul 2020

Global stock markets staged a remarkable comeback in the second quarter with the MSCI World Index up nearly 20% in Sterling terms. Whilst not recovering all of the losses from the high point in March prior to widespread lockdowns, global equities are nonetheless at higher levels than at the start of the year. Given the absence of any meaningful advances in the treatment of or vaccination for COVID-19 and that the corporate world is temporarily being held together by a variety of hastily created measures of government support, this optimism could be regarded as being somewhat misplaced.

Visibility on the short term direction of either the economy or markets is very limited given the dependency on the course of the coronavirus. In such circumstances, as investors, we must reassure ourselves of the appropriateness of long term strategies which in most cases involves a diversification of holdings within a portfolio. Never has this mix of assets been more important than in recent times as our holdings of Gold and short term debt have provided support during turbulent times. Moreover, the diversity within asset classes should not be ignored. When we write about ‘global stock markets’ we mask a huge divergence in performance between different sectors and geographies. In the first half of the year, a UK based investor holding the technology rich US market would have returned over 3% compared to minus 17% provided by the FTSE All-Share with its exposure to the Energy and Financial sectors and the uncertainty over Brexit arising once more.

As lockdown measures continue to be relaxed we will look carefully at the rate of resumption of consumer expenditure. Inevitably there will be some pent up demand, but it is difficult to imagine a return to pre-pandemic levels whilst caution around the virus and fears in the labour market remain. As economies reopen, the support measures from governments will contract with no chance of a frictionless resumption for businesses or the people they employ. The question will be how much of a gap remains and how quickly might it close. The answer lies of course in the path of the virus, and we should have learnt by now, about this we know very little.

At our June meeting the Investment Committee voted to reduce our exposure in longer term Gilts and add to our positions in higher yielding corporate bonds. Although an increase in risk during uncertain times, we feel that we are adequately compensated for this risk particularly given the very low returns currently available on Gilts.

I hope you find this newsletter interesting and relevant to you, and I would very much welcome any feedback you may have. Please do feel free to get in touch with your thoughts either by phone on 0207 063 4259, or by email on david.baker@mazars.co.uk.

David Baker, CIO