September’s Second Wave?
News of renewed localised lockdowns and quarantined university students has painted a rather grim outlook as we head towards the winter months. Boris Johnson’s ‘rule of six’ order and mandatory closure of pubs and restaurants at 10pm came into force earlier in September with further measures imposed through Scotland, Wales and Northern Ireland. Cases have recently surged and for now the death rate remains low; long may this continue.
Market reaction through September…
September is traditionally a volatile month for equity markets and this year they did not disappoint. The fear of a second wave and the renewed measures to keep the case numbers down had investors concerned that the nascent economic recovery could be reversed. The FTSE100 had a choppy ride through the month, at one point down 2.75% since the end of August but managed to close the deficit slightly, ending the full month down 1.63%. The S&P500 suffered even more volatility as the tech sector suffered a deep sell off, with the broad market falling by just over 5% at one point, but managed to claw back some of the losses, ending the month of September down 3.91%. Sterling weakened through September as the Brexit negotiations soured, raising concerns that a ‘No Deal Brexit’ was back on the agenda. Against the US Dollar, Sterling fell 4% and against the Euro, Sterling was down nearly 2%.
Where are we now…
Through the summer months business confidence had been improving globally on the hopes of a vaccine and a return to normality; however, consumer confidence was mixed as the US consumer continued to be pessimistic over the short term given the expiration of the payroll protection program in August. The debate continued through September as to whether a renewed stimulus package would pass and remains unresolved at the time of writing. Meanwhile, the UK government continues to work on an extension of the furlough package as the October expiration date nears. Investors now face three major hurdles as we enter the final quarter of the year: Brexit, The US elections, and the resurgence of COVID-19 cases.
How we have been managing portfolios through September…
Through July and August, the investment team had been preparing portfolios for the potential volatile times ahead, adding to fixed income and alternatives. In September, we further bolstered the defensive side of the portfolio through the purchase of US Government bonds as a sell off from the summer highs provided solid entry levels. On our Bespoke portfolios we sold shares in an insurance company following a strong run to expensive levels, and the proceeds for which are set for an investment in a global beverage company once price targets are met in the near term.
Current portfolio positioning and the outlook…
Currently portfolios are slightly overweight equities, as we still believe that over the medium to long term the equity allocation will outperform. However, over the shorter term we believe that broad market risk levels could increase; hence, the additions to both fixed income and alternative assets with a small allocation to cash to take advantage of any opportunities that may present themselves. We believe portfolios are well positioned to capture medium to long term opportunities despite the near-term uncertainties.
Looking ahead the bespoke team have identified some excellent direct company prospects that we believe will provide portfolios with strong medium to long term exposures; these are globally renowned companies through a mix of industries including: luxury retail, video gaming, mass media and information solutions to name a few. In addition, we have identified a technology fund that at the right price will provide portfolios with a high quality and diversified exposure to some of the best known technology names in the industry, as well as an exciting selection of up and coming technology companies.
Final thoughts…
This remains an extraordinary period and as such we are committed to managing portfolios through a dynamic approach. We expect this to continue through the rest of 2020 as we seek to minimise any downside effects of markets whilst taking advantage of the opportunities for high quality, stable long-term returns. We believe that the importance of active management is magnified in times like these, making sure that portfolios are well positioned for the medium to long term rather than just a single month or two.
Important Information
This update is for information only and does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. The views and opinions within this document are those of Casterbridge Wealth at time of writing and may change without notice. They should not be viewed as indicating any guarantee of return from an investment managed by Casterbridge Wealth nor as advice of any nature. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested.
