Quarterly Investment Newsletter Autumn 2020

Wed 07 Oct 2020

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Global stock markets built on the astonishing rebound from the Spring to post further, albeit more modest, gains during the third quarter of the year. Global stocks rose by nearly 5% in Sterling terms. That said, again the rises were far from uniform geographically, with US and Japanese equities posting strong returns whilst Europe struggled to a marginal positive return and UK equities lost further ground. Aside from Equities, Gold started the quarter strongly, but then sold off in early August as safe haven assets including the US Dollar retracted in less volatile markets.

There has been a noticeable change in market behaviour when it comes to news of a vaccine or therapy for Covid-19, with reports of successes and set backs not causing bouts of exuberance and panic in the way they did during the Spring. Partly this reflects a more grown up understanding of the medical situation – we no longer hope for an overnight cure – and relatedly, an acceptance that the virus will be with us for some time at least, requiring governments to find ways of keeping economies open to the fullest extent possible given the risks to life.

Thus we find ourselves living not only in an age of ultra low interest rates with little prospect of this changing in the medium term, but also in a time where direct fiscal support has become a necessity to keep the show on the road. In the US a bill to release a $2.2 trillion fiscal support package is making its way through congress. Its progress will be hindered by the split legislature (for now at least) and complicated by the November elections, but sooner or later a massive deal will be agreed, funded as always from future tax receipts. This is not insignificant stuff, and whilst the case for doing it is sound the repeated questions of its cost, the accumulated debt, and when the ‘chickens will come home to roost’ are persistent.

As well as the struggles of fighting the coronavirus, the UK and Europe face the more man-made issue of Brexit. Most investment commentators seem to believe that some sort of agreement will be found, and if so, it will probably be found at the eleventh hour. Such assumptions are often weighted to one’s own preference. Given visibility of the final outcome is almost completely obscured we see no reason why not to prepare our portfolios for the eventualities of either a basic deal or no deal at all.

At our September meeting the Investment Committee voted to retain our close to neutral position in Equities and our overweight to Gold. We continue to hold underweight positions in low yielding Sovereign Debt and the Commercial Property Sector. We reinstated a degree of currency hedging within our Overseas equity exposure, mindful that Sterling is the primary transmitter for Brexit developments.

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