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6 July: weekly investment update

4½ mins
David McFadzean, 
July 2020
6 July: weekly investment update
The week of 29 June saw the majority of markets return positive performances after word spread of a potential vaccine, and as the better-than-expected US jobs report offset news of rising local COVID-19 case numbers.
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The potential vaccine is from BioNTech and Pfizer, with initial trial results showing patients who received two doses of the vaccine had “significantly elevated” antibodies within four weeks of their first injection. It is now hoped a larger trial of 30,000 participants will validate the findings, which will take place in a few weeks, subject to regulatory approval.

Meanwhile, the number of new infection cases in the US topped 50,000 for the first time on Wednesday 1 July, led by record increases in the southern Sun Belt region. This number is set to increase further according to the lead infectious disease specialist in the US, Dr Fauci. He believes new infection cases could rise above 100,000 a day if behaviour doesn’t change.

The latest US jobs report showed that 4.8 million jobs were added in June, while the unemployment rate dropped to 11.1%. The decline in the jobless rate was better than expected, but was published with a note of caution given the data was collected in the second week of June and, since then, there has been a spike in US infections, forcing some states to restore restrictions on economic activity.

Finally for the US, the Federal Reserve monetary committee minutes from its June meeting revealed that officials debated its ‘yield curve control’. All committee members want to see further analysis of its effects in practice, suggesting that it is under serious consideration. It was also revealed that there was a growing consensus among members that they should “further clarify” monetary policy intentions through more detailed guidance on interest rates and asset purchases.

Amid criticism from the US and Europe, China passed its sweeping national security law for Hong Kong and significantly increased its power over the territory. It remains to be seen whether the rhetoric will escalate into actions by those critics.

EU labour market data was published on Thursday 2 July, which followed the US’s better-than-expected trend as unemployment only inched slightly higher to 6.7%, helped in part by the job retention schemes put in place by many member countries.

Last, but not least, after four days of intensified talks in Brussels, the EU chief negotiator for Brexit, Michel Barnier, said that “serious divergences remain” between the two sides and the EU needed its positions “to be better understood and respected” by Britain. Talks continue throughout the rest of the month.

The month of June saw the MSCI AC World Index rise +3.2% in US dollar terms, and +2.2% in sterling terms. At the country and regional level, the best performing markets were Asia ex Japan (+8.4%) and Emerging Markets (+7.4%), while the US (+2.2%), the UK (+1.4%) and Japan (-0.01%) underperformed.

Also for the month of June, at the sector level, information technology (+7.6%) and consumer discretionary (+5.3%) were the best performers, with healthcare (-0.7%) and utilities (-1.1%) the weakest. From a style perspective, investors continued to back growth (+5.1%) more strongly than value (+1.3%), while the performance of smaller companies’ stocks (+3.3%) broadly matched those of larger companies (+3.2%).

 

What’s happening in portfolios?

The underperformance of UK equities compared to the remaining developed markets has now reached almost 17% year-to-date, which is significant. With Emerging Markets also outperforming in June, this has both helped performance and supported our global approach to managing money.

On the equity front, our investments are generally in good shape, and we hope this will continue if the trend in July sees the more defensive areas leading, and cyclical/higher risk areas falling back i.e. a reverse of June.

Within fixed income, government bond yields rose slightly and credit spreads narrowed, with both investment grade and high yield corporate bonds outperforming. If this continues, it would be generally positive for us given our bias towards shorter duration paper.

Although there continued to be no ‘new’ news for our alternatives, we expect the news flow to pick up over the next few weeks as we enter the Q2 reporting season. Property remains a key focus and a positive Q3 rental collection, much of which will be confirmed over the next few weeks, and a restoration of a dividend would help performance.

As such, the only change we made to portfolios this week was related to our month-end rebalancing, where we reduced equity positions back to our target levels. We continue to believe that markets are too complacent as to the economic situation. In addition, the distortions in the market on the back of the central bank actions make it an especially risky time to push through dramatic asset allocation moves.

As we currently write, we do not have plans to make any material changes to our investment strategy, but will continue to keep you informed as events unfold.

 

Events this week

Markets continue to pay close attention to the pandemic’s path, as the number of new cases continues to increase in a number of countries, with new spikes being seen beyond the US.

The US weekly jobless claims on Thursday 9 July will again be closely watched, especially since the last three readings have been worse than expected and remain at more than double their pre-COVID-19 level.

Elsewhere, we have retail sales data from the Eurozone and China’s latest consumer price index being published, while the UK chancellor, Rishi Sunak, is announcing the latest policy measures on Wednesday 8 July as the government looks to boost its recovery plans.

Clients of Nedbank Private Wealth can get in touch with their private bankers or relationship managers directly to understand how their portfolios are responding to market events or call +44 (0)1624 645000.

If you would like to find out more about how we can help you manage your investments, please also contact us on the same number to understand how we might manage your money.

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David McFadzean

David McFadzean

Head of Wealth Management

David is responsible for spearheading the growth of our wealth management business across the company’s international jurisdictions. He leads our teams of private bankers and specialists responsible for fulfilling our purpose of protecting our clients, advising them with integrity and making their lives easier. Prior to taking on his current role, David was integral in developing the bank’s investment proposition for high net worth individuals, trustees and investment consultants. He is also a member of the bank’s executive committee.

He has over 25 years’ experience working for global blue-chip companies in both London and Jersey, and providing investment solutions to a wide variety of clients around the world. David is a Chartered Fellow of the Chartered Institute of Securities & Investment and a Chartered Wealth Manager. 

 
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