April market update Restrictions easing and economies re-opening

April was a good month for virtually all markets. Riskier assets such as equities and commodities continued their year-to-date rally, fuelled by Covid restrictions easing and economies reopening. The earnings season was also very strong, boosting sentiment as we entered the second quarter of the year. Current inflation data has so far proved to be no worse than expected, providing some breathing space for under pressure bond markets, which also rallied a little in April, albeit within narrow trading ranges. Elsewhere, the dollar gave back some ground after a strong start to 2021, boosting assets such as gold, which delivered its first monthly gain of the year.

“The earnings season was also very strong, boosting sentiment as we entered the second quarter of the year.”

The underlying themes driving global market movements remain unchanged from previous months. Vaccination programmes are allowing many Western economies to either relax restrictions or look forward to the prospect of doing so soon. This is fuelling a powerful early-stage economic rebound, with some spectacular year on year growth and profit numbers making headlines as the base effects of last year’s hard lockdown wash through.

Hand in hand with rebounding economic growth, the prospect of strong and rising price pressures forcing global authorities to raise interest rates remains the key near term investment risk. Bond markets have priced in a little bit of policy tightening, but not a lot, and given the generally supportive data from business surveys, it seems very likely that they will be tested again on this issue at some point later in the year.

With this point in mind, your investment team will continue to adjust portfolio asset allocation to fit with this continually evolving investment environment. In general, exposure to equities is modestly increasing across the board funded from a reduction in corporate bond holdings. Risks are balanced out through holding a little more cash and by building up exposure to alternative assets, with convertible bond strategies perhaps the most prominent beneficiary of any near-term money flows. Within the equity positions, we aim to balance out the style exposures, still carrying a tilt towards the more enduring themes of high-quality growth companies, but also upping the cyclical element, as conviction grows in the economic recovery and relative valuations remain supportive.

“We think we still have enough good ideas to continue to stay broadly fully invested in this early stage of the recovery cycle.”

The outlook remains solid but not without risk. Good value is hard to find, particularly in safer assets normally used to balance out risk-taking elsewhere in portfolios. However, a difficult valuation backdrop does not make it impossible to build a sensible portfolio and we think we still have enough good ideas to continue to stay broadly fully invested in this early stage of the recovery cycle.

Portfolio Performance

Portfolios delivered between +1.5% and +3.5% in April, with the higher risk bands doing better. As described above it was a month when nearly everything went up, with the strongest gains coming from equities, especially those in the smaller company area and those with exposure to the USA. Japan was a notable laggard as some economic sluggishness, profit-taking and Covid scares weighed on sentiment. Exposures to gold and silver markets produced some of the biggest portfolio gains, bouncing back hard from their lows in March. Around 60% of managers managed to beat their benchmarks, a decent result and good to see after a choppy March.

On behalf of the Saltus Investment Committee, April 2021