July Performance Update

The sun is out, the beaches are packed, and the government is paying for us all to have discounted meals out… who would have dreamt of that back in January! Holidaymakers are being quarantined from Spain, as Boris pulls a fast one on Spanish tourism. Is this psychological warfare designed to highlight his ruthlessness as we travel towards a Brexit crescendo? Or is this part of his wider COVID-19 strategy – who knows, perhaps only Dominic Cummings!

Anyway, suffice to say that as our portfolios progressed through July, we reduced our exposure to the UK, though not as a reflection on Boris, more that Blighty has more hurdles than most to jump over before it can stretch out its legs and get some economic momentum.

To be fair, challenges remain around the globe and investment markets have been trying to grapple with an emergence of second waves in various regions. That story is now not limited to the US (although it is more extreme there), with clear up-trends in cases across most of Western Europe and Japan. Interestingly however, hospitalisations and deaths are much lower as a percentage of cases than in March and April, which is a reflection of better treatment alongside a greater number of reported cases amongst young people (who generally do not suffer to the same extent). This bodes well as we approach the autumn and winter, if a vaccine is some way down the line.

Given that more challenging virus backdrop though, it was not surprising to see equity markets down in the month of July, following a healthy rebound in the previous quarter. The UK equity benchmark (FTSE 100) lost 4.2% for example, slightly worse off than its global counterparts although the vast majority were also negative. Comparatively, our portfolio range continued to trend upwards, adding between 0.76% (High Risk) and 1.39% (Low to Medium Risk) on the month. Adding that to the successes in previous months represented in the chart below; it is great to see the gap between our portfolio range and the overall UK equity market widen.

As we have written in previous blogs, we continue to hold strong preferences for quality businesses that are less affected (and in some instances benefit) from the pandemic. The longer the Covid-19 challenges go on therefore, the better we would expect the portfolios to perform compared to the average. In addition, more recently we have also become more cautious, especially in the lower risk portfolios, which has also helped our numbers in July.

Looking forward then, it is very much more of the same; caution over the general outlook but with ongoing pockets of opportunity. If the status quo remains, then we feel we are well positioned, though we are also aware the scene could change quickly, requiring a pragmatic mindset. In this respect we continue to plan for a variety of forward scenarios, constructing our likely changes in advance so we can react quickly and decisively as the environment evolves. In that respect, although the sun is out, its not time to go to the races just yet.