Alex Chappell

8th July, 2021

Blog, IC Insights

June Performance Update…

As individuals within the investment team, we are conscious not to believe our own propaganda, ensuring our views are as balanced and logical as they can be. Placing too much emphasis on our own opinion can be dangerous, and after all, none of us have a crystal ball. This pursuit for objectivity should lead to sensible risk-considered decisions – ideally to the benefit of our portfolio returns!

We are encouraged to think about our portfolios within the context of various future scenarios, building in diversification to help excel the virtues of what we hope are good ideas or themes, whilst also protecting against downside risk if our plans do not come to fruition. Ultimately our aim is to strive for a consistent journey, whilst also delivering a great outcome over the medium term.

It’s always important to check how we are delivering on these objectives, and the Covid pandemic has given us a good rear view mirror, with both good and bad market movements. We’ve plotted our Medium Risk portfolio as an example blow, and whilst we certainly haven’t made all the right decisions, we think we’ve got more right than wrong, and coming back to our core values, we have tried to keep an open mind on the various ways things could play out, ensuring our key risks were covered.  

In recent months investors have been talking heavily about “the rotation”; money moving out of Covid-positive sectors and into Covid-negative. The narrative has been based around a strong reopening and the ongoing support for policymakers causing higher inflation, especially in consumer-based sectors. The price of a staycation partially proves the point.

Our view has been more balanced than a short economic boom though. We’ve felt economies would re-open well, but that people would remain cautious as cases rise. Travel restrictions would also continue to restrict economic activity for some time to come, somewhat capping the economic recovery. Moreover, whilst we all hope to return to normal at some point soon, the reality is we are likely to have a new normal. The virus will remain with us in some form, and has accelerated the progress in some products and services and sped up the rate of decline for others. Life will not be as it was, even if we live in an unrestrictive world, courtesy of modern medicine.

Over the last 18 months the quick recovery and slower recovery views have provided us with some great opportunities. In quarter one of this year, we suffered a little as there was more momentum behind a quicker recovery than we were positioned for. It wasn’t our central case, though by June, the market narrative had moved back towards slower recovery, which suited us especially as we had added to ideas that had struggled earlier in the year. Bond yields also fell in June, as the narrative of more rampant inflation died back, specifically supporting the lower risk portfolios as the fixed income bucket added 0.91% in one month alone:

Overall, the portfolios added between 0.83% (Very Low Risk) and 3.44% (High Risk) in the month of June, taking our Q2 returns to between 2.2% and 8.2% depending on the risk profile selected.

Of course, all that is now in the past, and the journey continues. The UK economy will be the first in the developed world to reopen if it goes ahead with the July 19th plans. According to date from the UK government today we have around 87% of adults with antibodies either due to vaccination or prior infection. Will it be enough, and how do other regions differ? The US are fighting a further wave without the same level of immunity, so the challenges for other economies (as well as the UK) remains fascinating. Rest assured we will continue to plan for a variety of scenarios, but with a core portfolio of strong ideas that should do well whatever way things play out. No room for propaganda here, there’s a job to be done…

For more insights, see our Blog.