Posted 2nd July 2021
Markets in review:
|Equities||Index Level||YTD Change|
|MSCI – Europe||152||14.9%|
|Shanghai Composite (China)||3,608||3.9%|
|Brent Oil Futures||76.18||47.7%|
* Figures as at 25th June 2021
DPM in review:
- Boris Johnson announced in June that “Freedom Day” will be pushed back to the 19th July, due to a rise in coronavirus cases mainly due to the Delta variant. Pushing back the date has allowed time for all over 18s to receive their first vaccination dose. A small blip in the roadmap, however an additional frustration for businesses seeking clarity. The Chancellor Rishi Sunak has not extended the business support measures due to cease in September stating that support measures put in place in March were generous enough and had considered the possibility of an extended lockdown.
- Annual UK inflation in May rose to 2.1% breaching the Bank of England’s target for the first time in 2 years and stoking fears that the easing of pandemic restrictions since March will lead to a sustained rise in the cost of living. The BOE said inflation could reach as high 3% and economic growth would be strong but rise in the level of inflation would be temporary. BOE policy makers also voted unanimously to keep interest rates at 0.1% whilst maintaining their outlined asset purchase programme until the end of the year.
- According to data from the building society Nationwide, the average house price in the UK rose 13.4% from £216,4030 to £245,432 in the year to June, the fastest pace since November 2004. The rise has in the most part been attributed to the stamp duty holiday and a change in priorities among buyers.
- In Europe, business confidence rose to the highest level since 2012. The ECB President Christine Lagarde commented that it was important “not to withdraw support too early”, that the outlook for the eurozone economy was “brightening” and economic activity “should Improve strongly in the second half of the year”. The ECB made no changes to interest rates or its own asset purchase programme.
- In the US, Federal Reserve Chair Jerome Powell restated policymakers’ belief that the recent spike in inflation would prove temporary, whilst also voting to keep its current policy unchanged but revising both its growth and inflation outlook higher. President Joe Biden agreed an initial plan for $1 trillion in infrastructure spending over the next five years with a bipartisan group of senators. The agreement will have to pass through the senate however, but opposition on both sides are already calling for both an increase and reduction in the proposed amount.
- Signs have started to emerge that supply chain pressures, which have been partly responsible for the spike in commodity prices were starting to ease. Lumber prices continued their decline from recent record highs along with metal prices as China released stockpiles.
DPM in action:
The investment committee has continued its robust discussion around the possible effects of sustained levels of inflation as well as potential interest rate increases. The Bank of England, the European Central Bank and the Federal Reserve have all stated that they believe the current spikes seen in inflation are transitory. The spikes in inflation are being attributed to low base effects seen during the beginning of the pandemic, especially in areas such as fuel following a crash in demand during the initial lockdowns. Further spikes have come however, in the form of a rise in metal, raw materials and semi-conductor prices due to global shortages where supply chains are not expected to recover to normal levels until next year. For the short term, it looks as if inflation may possibly be here to stay.
Given the uncertain times that we are currently living in, it is more important than ever to focus on investing in good quality businesses with strong balance sheets that can command pricing power and that provide essential services. When selecting investment funds for our clients, these key attributes form the basis of our research. Fundsmith Equity is an example of this. The manager, Terry Smith has specific criteria that the companies he invests in must have in order to make it into the portfolio such as:
- The business must be resilient to change, particularly technological innovation.
- Businesses whose advantages are difficult to replicate.
- High-quality businesses that can sustain a high return on operating capital employed
By employing strict investment criteria and focusing on good quality businesses we ensure our clients’ portfolios are in the best possible position to navigate any investment related headwinds. By utilising the Laver Wealth Discretionary Portfolio Management service, we are able to make changes rapidly as and when opportunities arise but to also be proactive when more defensive actions are required.
Quote of the month:
“The only way we’re going to meet the global threats that we’re facing is by working together, and with our partners and our allies and I conveyed to each of my G7 counterparts that the United States is going to do our part. America is back at the table.”