z-kolkiemz-kolkiem

Weekly investment update

James Robertson reviews the week of 26 October, and another volatile week for riskier assets, particularly for currencies and equity markets, which largely declined in value.
Share on facebook
Share on linkedin
Share on twitter
Share on email
Published 3 November
6½ mins

The week of 26 October was another volatile week for financial markets, particularly for currencies and equity markets, as all riskier assets declined in value. The main triggers remain the political uncertainty over the US election and increasing concerns over the impact of the virus on economies.

The pandemic picture continues to deteriorate in Europe, with Belgium, France, Germany and the UK announcing fresh lockdowns, which are expected to last until the start of December1. The US is also struggling to control the virus as weekly cases hit record highs, with southern states and the Midwest especially affected. Meanwhile, the recent advances in rapid result testing have yet to be rolled out, or any timetables for vaccine distributions decided.

On the economic data front, the US economy expanded at an annualised 33.1% in the third quarter2, which comes after the second quarter’s record decline of -31.4%. Meanwhile, the US weekly initial jobless claims came in at 751,0003, which was around 40,000 lower than the previous week. The fear is that despite these reasonably positive data points, the numbers could weaken if the virus progresses as anticipated as winter sets in.

Election Day in the US is on Tuesday 3 November. Joe Biden is currently in a strong position with the fivethirtyeight.com model giving him an 89% chance of winning, and a national polling average lead of +8.8. However, given the polls were wrong in the 2016 election, the forecasting site has stated the 10% chance of Trump winning should “be taken seriously”.

Biden also holds strong polling leads in the key Midwest swing states of Michigan (+8.0pts), Pennsylvania (+4.7pts), and Wisconsin (+8.3pts)4. He is also leading to a smaller degree in the Sunbelt swing states of Arizona (+2.6pts), Florida (+2.5pts), and North Carolina (+1.8pts). Biden only needs to carry the Midwest to win.

It is worth noting, however, that we are likely to know the results from the Sunbelt states earlier, given they can process mail-in ballots ahead of the election, while Florida and North Carolina are allowed to count votes ahead of time. A quick win here for Biden could see a “Blue Wave” materialise rapidly4. Meanwhile, if Trump wins these states, we could have to wait until the end of the week for a decision.

Elsewhere, the Eurozone also saw a similar snap back in economic activity5, although the gross domestic product numbers – as with the US – remain below pre-virus levels. The numbers led the European Central Bank (ECB), in its latest policy announcement1 on Thursday 29 October, to keep its deposit rate at -0.5% and hold its emergency bond-buying plan at €1.35 trillion. However, the central bank also signalled it is highly likely to provide more stimulus before the end of the year. This came as the ECB president, Christine Lagarde, stated1 it was “necessary to take action” and that the bank’s staff had started work on potential adjustments of “all our instruments”.

Finally, the European Commission president, Ursula von der Leyen1, stated that Brexit talks were “making good progress”. More progress is, however, still needed on the two critical issues of fishing rights and the desire to ensure a level playing field between Britain and the bloc.

Given Monday 26 October was a day on which funds do not report prices, we report on a four day period ending 30 October this week. This saw the MSCI All World Country Index down quite sharply, falling around -3.84% in US Dollar terms and -3.24% in Sterling terms, with the difference in performance due to the weakness in Sterling.

Within equities, growth stocks (-3.06%) marginally outperformed value stocks (-3.44%), and large capitalisation stocks (-3.24%) fared marginally worse than their small peers (-3.06%). However, there was little to separate these negative performances given the selloff was broad based.

With regard to the sectors, healthcare (-3.87%) and information technology (-3.87%) stocks underperformed on the back of concerns that a big win by the Democrats would translate into limits on drug prices and increased regulation for big tech companies. The communication services sector was the best performer on a relative basis (-0.60%), as was the case for October as a whole (+1.77%). This sector is the least affected by the pandemic’s ramifications, with some communication companies even benefiting from the lockdown as more employees can work from home.

In terms of regional performance, despite the general risk-off environment, Emerging Markets performed better over the week (-1.78%) and in October (+1.82%). Europe, meanwhile, was the weakest area for the week (-4.81%) and in October (-6.03%) as the economy shouldered new lockdown restrictions and due to its higher exposure to more cyclical sectors.

October was a negative month for most equity markets, despite starting well, as global equities fell -2.66% and developed equities fell -3.30%.

Within bonds, the general risk-off environment meant global government bonds (+0.01%) outperformed corporate debt/credit (-0.35%) and especially high yield (-0.78%). However, US government bonds underperformed other government bonds as investors’ concerns again surfaced over a big win by the Democrats. Here, a win raises questions with regard to fiscal stimulus and, therefore, bond issuance. As such, the move higher in US yields was not followed by other government bond markets, such as the Eurozone and UK, not least as these markets may see even more bond buying by their central banks soon.

Currently, the German 10-year yield is -0.62%, the UK 10-year is +0.23% and US 10-year offers a lofty +0.83%. Given these low yields, it does not take much for credit to outperform government bonds as we can see for the month of October. Global high yield (+0.40%) and global investment grade (+0.08%) both returned more than global government bonds (-0.21%).

What’s happening in portfolios?

Within equities, our exposure to Emerging Markets via TT and Dodge & Cox was helpful to overall portfolio returns, as were our positions in Fundsmith and Nedgroup Global Equity due to their exposure to communication services. The performance of the Morgan Stanley Global Brands fund was held back due to its exposure to both information technology and healthcare sectors.

Within bonds, our exposure to credit was helpful, but our bias to US government bonds detracted from overall returns as US government bond yields rose the most in October.  

 

In terms of property, our exposure to global real estate investment trusts (REITs) via Nedgroup Global Property outperformed REITs more generally, while our exposure to UK commercial property was mixed.

Our healthcare investments in Target and Impact managed to generate a positive return over the month. In fact, Impact’s latest results showed a total return of +3.2%, of which +1.8% resulted from the dividend and +1.4% from valuation gains. The company also confirmed that 100% of its fourth quarter rent has been collected, while year-to-date rent money received is also running at 100%.

 

Our renewable energy holdings also posted some relatively encouraging third quarter results. Greencoat UK Wind posted a total return of +2.0% for the quarter, while Greencoat Renewables recorded a +1.2% gain over the same period.

Last, but not least, Hipgnosis announced a quarterly dividend increase to 1.31p, which is in line with its full year target of 5.25p. In an environment where dividends are being cut, or cancelled, the ability to increase dividend demonstrates how distinct the fortunes of song royalties are versus other assets. 

 

This performance can only be enhanced by the announcement on Monday 2 November of a US$323 million acquisition of 42 catalogues of 33,000 songs written by over 1,500 songwriters from Kobalt Music. The total Hipgnosis Songs Fund portfolio now comprises 117 catalogues and over 57,000 songs.

Events this week

There is naturally a focus on US politics this week and, while it is possible we will not know the winner of the election tonight, the results from Florida and North Carolina should give an indication as to how the race is shaping up.

 

It is also a busy week for markets in terms of economic data releases, although the coronavirus pandemic will continue to dominate attention.

On Wednesday 4 November, we see the Eurozone’s October inflation data released. And the week will end with US October payrolls and unemployment data being published on Friday 6 November. And it’s another big week for earnings’ announcements, with 128 companies in the S&P 500 index reporting.

Finally, attention will also be back on central bank committees as both the Federal Reserve (Fed) and Bank of England (BoE) announce their latest monetary policy decisions on Thursday 5 November. While no major policy changes are expected from the Fed, most economists expect the BoE to vote for additional stimulus.

Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how their portfolios are responding to market events, or call +44 (0)1624 645000 to speak to our client services team.

 

If you would like to find out more about how we manage clients’ investments, please contact us on the same number as above. Or you can get in touch using the links to the forms towards the end of this page.

Sources: Nedbank Private Wealth and (1) Bloomberg; (2) US Bureau of Economic Analysis; (3) US Bureau of Labor; (4) fivethirtyeight.com; and (5) Eurostat.

 

The value of investments can fall, as well as rise, and you might not get back the original amount invested. Exchange rate changes affect the value of investments. Past performance is not necessarily a guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios and is referenced for illustrative purposes only, not as a recommendation, not least as it may not be suitable. You should always seek professional advice before making any investment decisions.

about the author

James Robertson

James Robertson

Based in our Isle of Man office, James is responsible for delivering the end-to-end investment management process, overseeing the implementation of the Nedbank Private Wealth house view within our discretionary managed portfolios, and for developing our investment proposition.

 

He has over 18 years’ investment experience and has been responsible for the Nedbank Private Wealth managed discretionary portfolios since 2007. James holds the Certificate in Investment Performance Measurement from the CFA Institute.

Access more of our insights

Investing

13 January investment webinar: 2021 outlook

27 Nov

   |   30 mins

David McFadzean will be joined by Andrew Yeadon to talk through key scenarios for 2021, financial markets, the risks facing investors, and what that means for portfolios.

Investing

How vaccines are reshaping portfolios

27 Nov

   |   8½ mins

As the news of vaccine developments unfolded, we made changes to our clients' managed investment portfolios to position them for market movements over the coming months, as Rebecca Cretney explains.

Investing

Weekly investment update

24 Nov

   |   5½ mins

James Robertson highlights how value investments have again outperformed their growth peers during the week of 16 November - as they have for the month - and as appetite for riskier investments continued.

Investing

Weekly investment update

17 Nov

   |   6 mins

James Robertson explains the effects the biggest themes for the week of 9 November, and the month so far, have had on markets. The news focuses on the US elections and the encouraging updates on pending COVID-19 vaccines.

Get in touch

If you are interested in becoming a client, please complete the form via the ‘become a client’ button below. Alternatively, if you are already a client, or if you have a question about how we help clients in particular circumstances, please use the ‘contact us’ button.

 

We will get back to you as soon as we can during office hours, which are Monday to Friday, 8am to 8pm (UK time), except for UK public holidays.

Become a Client

Thank you for your interest in Nedbank Private Wealth. Please call us on +44 (0)1624 645000 or complete the requested information and one of our team will get back to you soon. We look forward to speaking with you.

* Required fields

Contact Us

Give us a call today on +44 (0)1624 645000 or please complete the requested information and one of our team will get back to you soon. We look forward to speaking with you.

Our office hours are weekdays from 8am to 8pm UK time, except for UK public holidays.

* Required field

Search suggestions

IMPORTANT

Beware of scams using Nedbank Private Wealth’s name.

 

Have you received an email or SMS claiming to be from Nedbank Private Wealth, inviting you to open an account?

 

Don’t be tricked – Nedbank Private Wealth never contacts members of the public directly, and will never use email or text messages to ask you for your bank details or sensitive personal information.

 

We are aware of scams using our name and those of our staff. These are usually intended to convince you to send money to the scammers, who use our name because it sounds legitimate.

 

If you are in any doubt about whether an email or SMS in our name is legitimate, please speak to your private banker, or call the telephone numbers on the “Contact us” page.