As most of us hoped and felt was likely, November was the month when we received positive vaccine news. In our last performance update we wrote about how quickly the mood music for investment markets could change on the back of this positive step forward. So far in 2020, there has been a huge divergence between businesses that have been able to excel their virtues during the pandemic, namely; technology, healthcare, and logistics with those that have been decimated; travel, leisure, retail. Up to now it’s been impossible to predict how many commercial flights Easy-jet might complete in 2021, and whilst there is still a lot of uncertainty as to how quickly a vaccine might be rolled out, it seems highly likely that the forward outlook for them and many others looks significantly more positive.
Our central case is that Investment markets are now in the process of adjusting their expectations for the future, and so we have seen a rotation away from the covid safe stuff that’s done well, to the riskier stuff that’s been badly damaged, and consequently where recovery opportunities should lead to significant upside.
After benefiting to a large extent (since the crash in March) from overseas assets and largely Covid secure sectors, upon announcement of the first vaccine on 9th November we began our portfolio rotation, taking some profits on areas that have done well for us and reinvesting into ideas we think have more upside moving forwards. The UK is a good example of that; it’s a market we have been underweight throughout 2020, and one that has really struggled; as it has large natural allocations that tend to do well when economies recover e.g. natural resources and banks. We also continue to expect a skinny Brexit deal (though it’s still in the balance) which won’t be fantastic for the economy by a long way, but will lift some of the uncertainty. For reference a skinny deal just means that we will be tariff free, however, it won’t stop compliance related delays for products at our borders, and there will still be much negotiation required into 2021 to include the vast majority of our business sectors. Nonetheless, we are back to neutral on the UK, from underweight in October.
Our general view is one of cautious positivity from here then. It’s important to make the point that the scaring from this crisis will remain visible for years not months. Unemployment will continue to rise, and the economic recovery will be slow not quick. But it will get better, and return opportunities from here are good in our view. Over the long term, the same quality businesses that have done the job for us this year should continue to deliver, though there are some short term opportunities to generate some additional benefits outside of that central theme.
To finish on the numbers; the portfolio range added between 1.96% (Very Low Risk) and 7.41% (High Risk) in November, and has now returned between 2.29% (Very Low Risk) and 8.67%% (High Risk) year-to-date. Our focus is to continue to build on this platform and deliver strong returns for our clients in 2021.