Posted 2nd March 2021
This is the second edition of our regular communication to clients in which we intend to provide you with a review of some of the recent events that have shaped investment markets and our strategic thinking in terms of the discretionary portfolio management (DPM) service we provide to you.
We hope that you find this both useful and informative.
Markets in review:
|Equities||Index Level||YTD Change|
|MSCI – Europe||134||1.6%|
|Shanghai Composite (China)||3,509||1.5%|
|Brent Oil Futures||64.42||24.4%|
DPM in review:
- Over 20 million people in the UK have now received their first dose of the coronavirus vaccine. The successful roll out of the vaccination programme has enabled Prime Minister Boris Johnson to set out his roadmap of easing restrictions. The 21st June is the now the intended date when all legal limits on social contact are to be removed.
- UK GDP fell by 9.9% in 2020, showing the extent of the impact that the coronavirus pandemic has had on the country’s finances. This is more than twice as much as the previous largest fall when the ‘Great Frost’ of 1709 froze economic activity. Figures from the Office of National Statistics showed that unemployment rose to 5.1% in the 3 months to December, its highest level in 5 years bringing the total number of jobs lost since the start of the pandemic to 762,000.
- In the US, markets continued to hit new all-time highs during February. Federal Reserve Chairman Jerome Powell stated that the US economy still faced many challenges, and that monetary policy would need to remain accommodative for the time being.
- Donald Trump was acquitted in his second impeachment trial by his fellow Republicans by 52-48 on charges of abuse of power and 53-47 on obstruction of Congress. The ruling means that the former president could run for office once again.
- The Japanese Nikkei index hit 30,000 for the first time in 30 years as strong corporate earnings and GDP data coupled with optimism over COVID-19 vaccine development prompted investors to buy up Japanese stocks.
- During February Tesla’s founder Elon Musk announced that the company had bought $1.9 billion of the cryptocurrency bitcoin, as well as announcing the company will start accepting bitcoin as a payment method for its electric vehicles. The price of bitcoin off the back of the announcement broke through the $50,000 mark for the first time.
DPM in action:
Prior to the pandemic, governments and large corporations around the world were focusing on targets to bring their net emissions to zero, in most cases by 2050. Sustainable investing is a trend that has been gathering pace for some time, but the pandemic has brought it to the forefront of investors’ minds. Huge infrastructure bills in both the US and the UK have been lined up as part of the post covid recovery, with a large proportion of the funds from the bills to be allocated to sustainable energy infrastructure. As a result of this the investment committee made the decision to invest in a sustainable energy fund. The fund invests globally across the renewable energy market in areas such as wind, solar, geothermal, battery producers and electric vehicles.
European stock markets have yet to recover from the lows seen during 2020, however the tide is beginning to turn. Company valuations in the US have begun to look less sustainable, and as such investors have started to look to Europe for investment opportunities in quality companies at attractive valuations. European valuations look attractive in both large and mid-cap stocks. The investment committee made the decision to diversify the allocation to European equities to reflect this with the aim of achieving a more blended approach going forwards to ensure client portfolios benefit from the post covid recovery across all European sectors.
Jitters were felt in global stock markets during the last week of February, with US treasury yields ticking up to their highest level since the pandemic began. Fears of rising inflation led to a selloff in stocks as interest rates are usually raised in order to keep inflation in check. This has the effect of reducing company earnings as borrowing costs increase. The investment committee continually monitor developments in stock markets and macroeconomic data. The advantage of our Discretionary Portfolio Management service is that we are able to react and make changes rapidly for our clients as and when opportunities arise and to also be proactive when more defensive actions are required.
Quote of the month:
“Energy transition will drive enormous growth, with some sectors operating in the clean energy field showing a 10%-20% growth potential. We are looking to tilt our portfolio to those growth areas.”