July Performance Update…

“There are decades where nothing happens; and there are weeks when decades happen” – that was Vladimir Lenin, referring to society staying stable for long periods of time, before shifting quickly and meaningfully, towards a new normal.

It’s interesting to think that although last year was a huge adjustment for all of us, until now, we haven’t really been able to understand what would stick or twist. This morning I drove to work after a work-from-home day yesterday, had a meeting with the team, followed by a Microsoft teams call with an investment firm, a brief walk in the sunshine at lunch time, and then some research work amongst other things this afternoon. My day-to-day schedule hasn’t really changed, but where and how I do it is less consistent. 

Some implications of this societal shift are reasonably easy for us all to see then, such as a greater use of technology, and lower social mobility. We’ve all become healthcare experts as well, or at least we are more health conscious. Even as a double-jabbed youngish person, I notice I’m weighing up what social spending is and isn’t worth the risk. I also own an inflatable hot-tub, something I never thought I’d say, and previously would hardly ever have been home to use! They are great by the way, but the prices have gone up…

That brings me onto some thoughts on inflation, which we’ve discussed is a key economic variable and has a knock-on effect on all different markets. A standard fill-up for my old school petrol-guzzler is around £65, but this morning the pump said £75! That’s a 15% increase, but then again, if I’m working from home 2 days out of 5, or 40%, I’m still better off overall. Economists theorise that as prices rise, people’s disposable income falls, which stifles spending. But if our lives are naturally more cost-efficient, and socially we are more selective, does inflation really have such a great effect?

We are in a new normal, which means our traditional view of what should happen may not ring true, and that has big investment implications. Our central case for a slower economic recovery based on cautious behaviour remains, which is likely to keep bond yields lower and equities supported. Slow and steady should be good for future returns.

With that in mind, it’s probably not surprising that July was another good month for the portfolios, as they returned between 0.29% and 0.96% on the month, taking the year-to-date returns to between 2.31% (Very Low Risk) and 7.31% (High Risk).

The natural question is what could derail the current progress? A vaccine-evading variant is the obvious one, though our ability to deal with such a challenge is vastly enhanced on last year. Another is a policy error, where Central Banks raise interest rates too early, but again the chances seem muted. Something could of course come unexpectedly out of left field, but absent of such an event, the outlook for the rest of this year continues to look positive.

So now that the vast majority of restrictions have eased, we are all adjusting to our new normal. It is likely to be one of altered spending patterns and lower social mobility, both of which support markets by facilitating a cautious but sustainable recovery. In addition, we continue to invest in a number of long term themes that have benefitted from the pandemic, such as digital infrastructure, technology adoption, and healthcare innovation. For now then, things are playing out as we expected, and the portfolios are benefitting. Rest assured however, we will continue to operate with the same diligence we always do over the months ahead, watching for signs of further shifts.

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