A tentative rally amid extraordinary intervention
With news flow running at such a pace that most comment was out of date by the time of receipt, we thought it most useful to provide a current overview of conditions and how portfolios were positioned. At the time of writing, stock markets had rallied from their mid-March lows, with the UK, Europe and Japan 5 to 6 per cent higher in sterling terms and the United States gaining just over 3%.
Safety and good health come first
During what were deeply worrying times, we were keenly aware that money matters became secondary to the safety and good health of our clients, their families and friends. We wanted to reassure clients that we had their investments in hand and that they could trust and rely upon us to continue navigating through these volatile and difficult markets. Our employees were committed, whether working from the office or from home, and the management of investments was entirely unaffected.
Year-to-date losses remain steep despite the rally
Year-to-date figures remained sobering. In sterling terms, the United States and Japan had lost around 11%, helped by stronger currencies, while Europe and Asia were down 16% and the United Kingdom had suffered the most, with losses exceeding 20%. Overseas markets had shown larger gains in local currency terms, but a stronger pound reduced these in sterling. Government bonds recorded small gains, but those with lower credit ratings continued to suffer.
Economic data was reflecting the deliberate collapse in activity, with sentiment surveys pointing to a sharp contraction in growth. In the United States, recent employment data was far worse than expected, partly because the initial fiscal package was designed to compensate those who had lost their jobs rather than to prevent job losses, as in the UK. Lack of demand for oil, combined with continued squabbling over production cuts, saw its price fall to a 17-year low.
Rates cut to an all-time low of 0.1 per cent
Governments and central banks announced further measures to combat the spread of the virus, together with major initiatives to soften the impact on businesses, individuals and the continued functioning of the investment markets. The Bank of England's Monetary Policy Committee cut interest rates to an all-time low of 0.1%. Central banks committed to buying unlimited amounts of corporate as well as government bonds, the US Federal Reserve made dollars available through swap facilities, and cheap funding was offered to smaller businesses alongside fiscal packages for individuals.
An additional pragmatic, though less welcome, move was to encourage banks and insurance companies to suspend paying dividends in order to build a stronger capital base. This, along with several necessary dividend suspensions from other companies, would hit those who relied on a regular income from their investments in the short term.
A note from the desk
I am pleased to share our monthly update on market events. The overview seeks to summarise market movements together with our views and the rationale for the positioning of investments going forward. As always, should any aspect of this commentary prompt a question, we would welcome the conversation.
Martyn Charlwood · Managing Director
Cautious grounds for optimism
The current rally had been driven by a belief that the virus may have peaked in terms of new cases, and that the daily rate of deaths would follow a similar pattern with a lag. But it was too soon to be confident, and a second phase of the pandemic could not be ruled out. It would also take time to determine just how badly businesses and individuals had been affected, and in what financial state they would emerge from the crisis.
On a more positive note, governments and central bankers had acted with a far greater sense of urgency than during the previous crisis. These measures could not solve the pandemic, but the hope was that they would keep a large proportion of families and businesses solvent and in a position to boost economic activity when the all-clear was given. Corporate earnings would fall in the near term, but investment models showed that valuations had reached attractive levels.
Valuations have fallen to attractive levels, and continued volatility will provide opportunities to invest for good long-term performance.
Some observers had attributed recent behaviour to the five stages of grief, arguing that acceptance was required before the market could find a lasting bottom. Others compared the pattern to previous crashes, where a sharp rally was followed by a further fall to a lower and more prolonged base. We remained mindful that too many crucial unknowns persisted, but took comfort from the fact that our portfolios had fallen by considerably less than the broader FTSE, and that none of our portfolios held property funds, which had once again suspended dealing. Our office telephones remained open, and we were happy to help in any way we could.
Our recent purchases in the UK and US had positioned portfolios well to benefit from any improvement in sentiment. We retained cash to deploy at lower levels, and our diversified approach was designed to withstand extreme market conditions.
Positioned for recovery
Recent purchases in both the UK and the US had put portfolios in a good position to benefit from an improvement in sentiment, while still maintaining capacity to act at lower levels should the opportunity arise.
Cash held in reserve
We continued to believe that the risk remained of markets revisiting their lows and that better buying opportunities may yet present themselves. Cash was held ready to deploy.
Diversified across asset classes
Our portfolios were invested in a wide range of assets using actively managed funds with sound investment processes, designed to diversify risk. As a result, while losses were disappointing, portfolios had fallen by considerably less than the FTSE.
Important information
This article is a marketing communication intended for general information only. It does not constitute personal advice, a recommendation, or an offer to buy or sell any investment. If you are unsure whether an investment is suitable for your circumstances, please seek personal advice.
Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise. Capital values are at risk and not guaranteed. Forecasts and views expressed in this commentary represent our assessment at the time of writing and are subject to change.
To discuss how this commentary applies to your own portfolio, we would welcome a conversation.
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