Investment Commentary Quarter 3 2020

UK & Global stock markets continue to dance around driven by a number of political, geo-political and economic factors, all adversely effected by the continued presence of Covid-19 that sadly is not going away and I do not need to remind you this remains a significant health and economic threat.

Looking Back – Quarter Three

As Quarter Three has ended, we have once again taken the opportunity to review how global markets have fared during these ever-changing times.

Further detail in relation to our investment commentary and performance data can be found here.

In summary, Quarter Three saw the US, Emerging Markets and European sectors produce modest positive returns driven by hopes of a swift and efficient solution to handling COVID-19 cases (hope for which has now been quashed).

The US markets have also been boosted by the performance of the tech sector which has profited as a direct result of COVID-19 and carried the US market and is the reason behind its V-Shaped recovery.

Additionally unprecedented fiscal and monetary support has helped hold economies together particularly in China, which has remarkably rebounded from the pandemic slowdown with manufacturing output and economic growth producing better than expected numbers resulting in a sharp recovery in stock values. We hope this will be mirrored in the West when we gain control over the virus.

The UK has continued to underperform largely because the composition of the FTSE All-Share index which is packed with traditional companies such as Banking, Finance, Construction, and Engineering firms all of which have been adversely impacted by the pandemic, while the Brexit trade deal deadlock, which is causing a high level of uncertainty is further stifling any UK market recovery.

Value shares, where we tilt our portfolios both in the UK and Globally have underperformed against Growth shares again during Quarter 3, although it did exceed its benchmark in the last month of the quarter.

An element of value share underperformance is due to the lack of exposure to sectors such as healthcare and technology (sectors which have performed strongly during COVID-19). So, while value shares have fallen more deeply since the outset of COVID-19, when the markets recover, we fully expect these shares to accelerate more quickly and for our client’s investment values to benefit from such exposure.

Looking forward…

Looking forward we do see the picture changing. In the immediate future, the Brexit trade negotiations will end either with a deal or no deal by the end of the year and the US election results will be known, both of which will remove some of the uncertainty in these markets, particularly in the case of the UK, and should improve investor opinions.

Long term, our views are that the development of a vaccine and governments handling of COVID-19 will continue to be the major influence over global markets.

We anticipate short term volatility will continue, that is the easiest of predictions. Despite this, for long term investors we do see the current position as an opportunity as we expect to see a recovery in markets which historically has resulted in smaller and value company shares outperforming growth shares. The big unknown is just when this recovery will come?

As usual, we provide access to any relevant Model Portfolio Factsheets below.

Each Portfolio is designed to meet a range of investors’ needs, having different target weighting of equities and bonds, with the aim of delivering a range of risk and return outcomes to suit each investor.

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