The Investment Committee
5th February, 2021
January Portfolio Update…
2021 started where 2020 left off; at a fast pace. Lockdowns were extended across the majority of the developed world, vaccines rolled out at unprecedented rates, and markets moved by social media to extents we have never seen before.
Starting with the virus, it became clear early in the month that the increased transmissibility will likely lead to a slower easing of restrictions. Whilst cases have fallen significantly since early January, it is likely we will need the vast majority of the population to have received a vaccine before we can reopen our economy fully without significant risk of a fourth wave. Our base case is therefore that although very gradual easing is possible, the majority of restrictions will remain in place, (though easing) into early Spring. It is likely restrictions of some form will be in play for most if not all of this calendar year.
On an upbeat note, the pathway towards normality is certainly more visible given the pace of vaccine rollout and our ability to monitor and adapt to new variants. At the time of writing, over 10 million people in the UK have had their first vaccine dose, around15% of the population. Once that percentage gets above 50% (mid to end-April), added to the population who have some level of immunity through having had the virus, then the odds will progressively be tilted towards expansion.
That backdrop is positive, though the buoyant economic bounce-back many were hoping for when vaccine success was first announced in Q4 has been pushed back around 6 months from the most optimistic of hopes last November. Investment markets have naturally adjusted, falling back towards the end of January and finishing the month in slight negative territory. The FTSE 100 (largest 100 companies in the UK) and MSCI World (a similar index for global companies) lost 0.79% and 1.44% respectively. Comparatively, the DB Wood Portfolio range returned between -0.19% (Very Low Risk), and -0.59% (Low to Medium Risk) respectively, protecting slightly better than the average. We have reduced our risk slightly in the short term, though it’s a balancing act trying to have enough risk in portfolios to take advantage of a successful global vaccine program, and enough defensive structure, if new variants continue to fight back.
The other story that grabbed all the headlines was the formation of “wallstreetbets”; an online networking forum centred around taking on institutions who are shorting (betting against) specific stocks. The idea was that to get enough people to buy these stocks at the same time, the price would rise rapidly at the expense of the institutions. The mass coordination caused some stocks, like ‘Gamestop’, to rally 800% in the matter of days.
Without getting too focussed on the details (which are fascinating but require a longer blog), it is another example (alongside populism) that the average person is frustrated with a world that is geared in favour of those with significant wealth. Consequently, policymakers will continue to face the huge challenge of redistributing wealth, whilst supporting the innovation and growth required to help pay down large debt burdens.
Naturally we have our own views on how matters might play out economically over the years ahead. In this regard look for themes that are likely to gain traction, backed by a sustainable busines model. COVID-19 has accelerated a number of our themes, and there is a real opportunity to add value, particularly over medium and longer-term time horizons. To give specific examples, we are adding positions around clean energy exposure and healthcare innovation in relation to gene technology. These are areas we think are structurally engrained now, and will be building them into the portfolios over the months ahead.
January should act as a reminder that we are very much still in the midst of an extraordinary market environment. However, it is one that will continue to provide us with opportunities to implement our approach and continue to deliver for our clients over 2021 and beyond.