The Investment Committee

4th September, 2020

Blog, IC Insights

August Performance Update

The eighth month of the year is usually calm and collected, as investors seek to break away for the holiday season to absorb the main trends from the year so far. That’s not too difficult in 2020 – we have an economically crippling virus, policymakers are supporting things for now, and we are all sat on the edge of our seats waiting for someone (outside of Russia) to announce successful vaccine results.

The quip about Russia could be unfairly misguided. They may very well have a working vaccine, but it’s impossible for us to know that without the results of controlled trials. Maybe they are about to start the biggest vaccine trial in history using their whole population… in which case, we should know quickly if it works as it will be clear in the official data.

Anyway, as we sit today no-one is yet to provide a solution, and as such, markets have continued to follow the same trends as in recent months, trading relatively sideways albeit with the bright stars in sectors that benefit from the pandemic; technology, healthcare, consumer staples…  after all, we all still need toothpaste! Meanwhile, as the furlough scheme starts to phase out, we have started to see the job losses we expected come to the fore. There will no doubt be more of this over the months ahead, likely taking the unemployment rate up to 10%, from 4% at the start of the pandemic.

The other news that has been doing the rounds is that the UK Chancellor is set to hike taxes in his Autumn budget, especially targeting corporation tax. That does not really seem like the sensible thing to do given our main focus heading into 2021 is going to be getting people back to work. Increasing the tax on those who may otherwise employ people isn’t very intuitive. Not ruling out specific targeted measures, we actually expect more spending, as the Prime Minister continues to loosen the purse strings to propel the economy into recovery.

Staying in the UK we then have the Brexit deadline now approaching (another blog all on its own). Our resident Political Analyst, Kelvin Rollitt, has developed an internal ‘Brexitometre’ as a way of summarising the most likely outcome. You’ll be hearing more about this soon, but suffice to say it’s hard to call at the current time with both sides still well apart (albeit with a history of last minute U-turns still very much in memory).

On the global stock market front, US equity and the technology sector continue to grow their bubble. Apple is now estimated to be worth more than the entire value of the top 100 companies in the UK. Some might say the UK is cheap and Apple is expensive, both for good reason. Others might suggest the UK looks a good long-term bet on a five year view. We cut our UK exposure heavily this year and, so far, this has been of benefit with August being a case in point. We are reviewing our re-entry to the UK with caution, as whilst the currency approaches £1.35 to the dollar, it looks very expensive to foreign investors and unlikely to attract significant attention, particularly with Brexit looming. It’s likely too early yet to dip our toes back into blighty.

Yet as we know too well, the future is not preordained, things do not always turn out as expected – sometimes in positive ways. Who expected after the global financial crisis that unemployment rates would fall to near record-lows in the UK? The UK’s vote to leave the EU in 2016 slowed growth, but less than the more pessimistic forecasts suggested, and unemployment continued to decline, so it pays to remain objective and open minded.

So, what happened to our portfolios in August….?

Pleasingly for our clients, all of our portfolios gained well in August relative to their targets, each one outperforming their respective benchmarks. For example, the Low risk portfolio added 0.9% after all costs, whilst our High risk portfolio added 4% after costs. All our portfolios are now positive gross of costs for the year, and whilst our intention is to carefully drive towards a positive end to the year, we need to remain alive to the fact that the right answers are not always in the direction that you might think. As John Lennon once said, “Life is what happens to you, whilst you’re busy making other plans…”