Will de Baer, Bespoke senior investment manager takes a look at the markets.
What happened through July…
July marked the first negative month for the FTSE 100 since March 2020. The markets lost momentum as the Covid-19 spread strengthened through the Americas and isolated spikes re-emerged in parts of the UK, Continental Europe and Australia. Through July a reality set in that a successful medical solution to the crisis, the process to find a safe vaccine will take longer than hoped. Investors therefore became increasingly nervous that the economic re-openings could be reversed resulting in prolonged economic pain.
How the markets reacted…
The FTSE 100 closed out the month of July down 4.4%, with the index down 21.8% for the year so far, although up 18% since the lows of March 2020. The UK market continued to be held back by the cyclical sectors, notably energy, financials and travel and leisure, as investors remained sceptical about the scale and breadth of the economic recovery. The US index of leading shares, the S&P 500, was up 5.5% through July, up 1.26% since the beginning of the year and up 46% since the March lows.
Market drivers made all the difference…
As discussed in previous commentaries, the US market has a significantly different set of constituents to that of the FTSE 100, with heavy weightings towards the tech heavy corporate giants, including: Apple, Microsoft, Amazon and Google. These companies have not only survived the current crisis but thrived as their technological advantages have placed their business models at the forefront of the rapidly accelerating digitalisation of the global economy. It is these and other technologically advanced companies that have propelled the US markets higher.
Second Quarter 2020 results season is upon us…
We are currently in the thick of the second quarter 2020 results season, and as anticipated there have been some extremely polarised numbers. The US technology giants have mostly recorded their best quarter on record, propelling shares to daily new highs. At the other end of the spectrum, those companies that have suffered the wrath of the virus-related lock downs and cautious re-openings have been substantially negatively affected with minimal future guidance given the ongoing uncertainties. The hardest hit sectors have been the retail, travel and leisure industries.
How we have been managing portfolios…
Through bespoke portfolios your investment team have been mindful of the equity exposures having carried an overweight position since the lows of March 2020. Coming into July the team had been reducing the equity exposure through targeted equity sales, building the cash positions. Through July the team deployed a portion of the cash into select alternative exposures, including a European absolute return fund, a long short bond fund and a specialist Environmental, Social and Governance (ESG) carbon emissions fund replacing previously sold down mining exposure. In the coming days it is anticipated that the team will be purchasing an Emerging Market debt fund to provide additional diversification and yield. Looking ahead the team will continue to carefully manage exposures, looking to carry out ‘gardening’ rebalancing to ensure portfolios do not move too far from current levels.
Looking ahead…
The upcoming months are typically volatile for equity markets. This year we have the US Presidential elections to contend with and will be closely monitoring the situation in US. We have positioned portfolios accordingly, with equities at or near neutral, increased alternative exposures that should help protect the portfolio during difficult times, fixed income remains allocated to high quality and cash is at a level that will provide the necessary dry powder to take advantage of any market related turbulence in the coming months.
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.
