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DPM in review: January 2021

Posted 3rd February 2021

DPM in numbers:

Equities Index Level YTD Change
FTSE 100 6,407 -0.8
MSCI – Europe 131 -0.8%
S&P 500 3,714 -1.1%
Shanghai Composite (China) 3,505  0.9%
Nikkei (Japan) 28,091  2.4%
Gold 1,865 -1.8%
Brent Oil Futures 55.59  7.3%


DPM in review:

  • Mass vaccination programmes across the globe has led to renewed optimism in the fight against Coronavirus. The UK has been one of the world leaders in vaccinating its population, with the numbers of individuals receiving their first jab increasing at a rapid rate. A return to something resembling normal life may be on the horizon.
  • The new year also brought with it a new incumbent in the White House. Joe Biden has wasted no time in repealing Trumpian policies such as re-joining the Paris Climate accord and working to push through a coronavirus stimulus package worth $1.9 Trillion. The stimulus plan would include direct payments of $1,400 to individuals, aid to state and local governments, an expansion of tax credits for children and an extension of federal jobless benefits.
  • During the last week of January amateur traders took on the big Wall Street Hedge Funds leading to some nursing heavy losses. The Reddit traders identified companies where Hedge Funds had taken large short positions and bought up the shares in turn driving up the share prices. Prices rose even further as Hedge Funds began to ‘close out’ their positions and having to buy the shares at the new inflated prices. One of the favoured stocks, GameStop, rose by more than 700% in a week.
  • Equity markets across the UK, Europe and America, started the year on the front foot, however these gains had reversed by the end of the month. Tighter lockdowns across Europe and the prospect of ‘Vaccine Nationalism’ dampened sentiment, with the European Union saying it would implement a mechanism allowing EU countries to block exports of vaccine doses if their purchase orders had not yet been fulfilled. In the US, with Equity indices reaching consistent all-time highs, investors began questioning the sustainability of valuations and in doing so began taking profits on companies that have surged in value during the past year.

DPM in action:

Over the course of January, the Investment committee implemented changes to portfolios in order to position them to take advantage of the potential opportunities that we see going into 2021 and beyond.

We sold out of our position in the Government Gilt fund we held and reinvested the proceeds into a Strategic bond fund. The investment committee felt that Government gilts no longer offered the traditional protection that they have historically provided. High prices and lower yields diminish potential returns and increases the chance of longer-term capital losses. Strategic bond fund managers can actively move about the fixed income sector and look for the most attractively priced and best yielding bonds.

Following a sharp 30% rise in our Japanese equity fund we decided to take profits on valuation grounds. We reinvested 50% of the proceeds into a Chinese equity fund and 50% into an Asia Pacific fund. This decision was made in order to take advantage of the structural growth opportunity that we believe China and the Asia Pacific regions offer as a whole.

We currently remain underweight in the US on valuation grounds. We see the US markets as an innovative and entrepreneurial. However, following the rapid accent of share prices over the course of 2020 and into 2021 we do not believe the growth potential outweighs the current risks of increasing exposure to the region.

We currently have a preference for UK equities as we see distinct values in the share prices. The share prices of UK companies are yet to recover from the falls seen in markets during 2020. As valuations in foreign markets begin to look top heavy investors will look for strong, quality companies and we believe the UK will be at the forefront of asset allocators minds throughout the year.

Our views can change, and with that our decisions of where to allocate our investors capital. The advantage of our Discretionary Portfolio service means that we are able to make changes rapidly for our clients in order to take advantage of opportunities as and when they arise.

Quote of the month:

‘Someone once said that no-one ever got poor by taking profits. This may be true but I doubt they got very rich by this approach either. We are not the sort of people who ever declare victory”

Terry Smith, Fundsmith Equity Manager.

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