Alex Chappell

12th November, 2021

Blog, IC Insights

October Performance Update…

As famous investor Chuck Prince once said “as long as the music is playing, you’ve got to get up and dance”. For the last decade and a bit, the music has been the sound of money coming into the system to support economies in one form or another. The tune has been relentless and repetitive. However, for brief periods in 2021 the mic cut out, leaving the dancers on the dancefloor bemused. Concerns over higher inflation reverberated, both in mid-Feb through to March, and September into early October. On both occasions though, Central Banks held their nerve, and the music resumed albeit it with a slower beat. Just last week there were many calls for the Bank of England to raise interest rates as UK inflation topped 4% year on year… they didn’t, they spun the decks once more and kept the party going!

As we’ve been saying throughout 2021, its normal to expect moderately higher inflation coming out of a recession. Governments have been rebooting the economy, amidst a pandemic that has made travel and therefore shipping, significantly harder. Central Banks are determined to stimulate growth and are less concerned about ‘price stability’ – they care more about unemployment levels and even the conditions in investment markets. All of which have become dependent on money printing and cheap borrowing. Reversing from this course isn’t going to be easy for policymakers, and that was reinforced towards the end of this month, to the liking of investors. Regardless of whether it’s right or wrong, this has been our central case for how things might play out.

So despite some jitters in portfolios at the start of the month, we remained risk-on throughout October, with the portfolios benefiting and adding between 0.22% (Very Low Risk) and 0.83% (High Risk) overall. That leaves year-to-date returns sitting between 2.48% and 8.78% depending on the risk profile selected, with all portfolios on target for the year, two months before year-end.

I read an article last week titled “are you a journalist or a fund manager?”, alluding to the differing perspectives of the two professions. The writer pointed out that we are used to reading headlines like “risks rise as inflation and COVID cases soar”, in contrast to “the global economy continues to grow as innovation accelerates”, should a fund manager take the script. The latter is hardly click bait but is closer to the truth of what really matters. If companies are innovating, and let’s be clear, due to money printing and cheap borrowing, technological progress has never been quicker, then we continue to create new markets and shareholder value at break-neck speed, supporting share prices and the markets they operate in.

That’s the real story as to why equity markets have had one of their best bull runs in history, and is the main rationale as to why despite high valuations, it’s likely to continue. A black swan event like COVID, that alters the building blocks of the economy fundamentally, clearly need a lot of focus, but small market wobbles based on day-to-day news-flow, are likely blips in the overall positive trend. They are normal as well – it’s not healthy for things to go up in a straight line. Our job remains to navigate the ups and the downs as best we can, but overall ensure our clients have exposure to great ideas that will add value for many years to come. The portfolios continue to be an amalgamation of these ideas, which leaves us cautiously optimistic about the future.