Market update October 2020
Wait and see mode...
6 November 2020
October brought with it the first major wobble in risk sentiment for many months, as investor nerves frayed ahead of multiple important, but difficult to forecast, events. Although the looming US presidential election and Brexit negotiations had their impact, there was in reality little ‘new’ news on either topic for investors to digest. The real hit to sentiment and prices came once again from COVID-19, as markets slowly accepted that additional damaging lockdown restrictions were inevitable if the virus was to be brought under control ahead of winter. Western economies, where momentum had already begun to wane in September, now faced a more serious challenge which, combined with the high degree of political uncertainty, led markets to retreat steadily throughout the month.
“Those parts of the world which are having a ‘better’ Covid experience, such as Japan and Asia, performed much better than the UK, US and Europe”
The major pockets of weakness were felt in developed equity markets as they fell between -3% to -5% from recent highs. Those parts of the world which are having a ‘better’ Covid experience, such as Japan and Asia, performed much better than the UK, US and Europe, as did the corporate credit market, which is still enjoying massive central bank support. The gold price was marginally down on the month and similar moves were seen in the oil market, as it moved to price in the lower demand that lockdowns would inevitably bring with them. There was little appetite for buying into equity market weakness, but then again, the selling pressure wasn’t particularly heavy either.
What happens next?
Heading into the last two months of an extraordinary year we are now very close to knowing the outcomes of multiple key events – with Brexit, US elections and a coronavirus vaccine prospects all set to come to a head before year end. That reduction in uncertainty is usually enough in itself to put markets on a firmer footing, but given the very real possibility of negative outcomes (e.g. vaccine delay) there is little incentive to position portfolios aggressively in anticipation of any one particular outcome. In the short term, markets and investors are in ‘wait and see’ mode.
Meet your financial needs and objectives…Speak to an expert
Whilst political events undoubtedly generate a large number of headlines, we do think that the delivery of a Covid vaccine will turn out to be the most important event of all from a market perspective. We can already see from the broad Asian market just how positively markets respond when economic activity is able to return to something close to normal. Although we have no particular insight to any of the vaccine programmes, we can note that the most recent news is positive and that the chances of an effective vaccine arriving early next year are rising. That would obviously be good news on multiple levels and would open the way for some heavily punished assets (e.g. UK equities) to bounce back from depressed levels
“Heading into the last two months of an extraordinary year we are now very close to knowing the outcomes of multiple key events”
Another major factor that is acting to underpin sentiment in uncertain times is the willingness of governments and central banks to intervene (i.e. spend) in massive size to support economies through the epidemic. This is most evident in the bond and credit markets, where corporations are able to fund themselves in record amounts, backstopped by central bank buying programmes.
Similarly, furlough schemes and related policy actions are filling some of the gaps for under pressure consumers. This combined approach is set to continue for the long term and to a large extent is independent of near term events described above, giving anyone with a longer term perspective (such as your Investment Committee) the confidence to hunt for opportunities now, however noisy the headlines may be.
“The delivery of a Covid vaccine will turn out to be the most important event of all from a market perspective”
Portfolios delivered between. +0.1% and -1.6% depending on risk mandate, with the higher risk portfolios falling more. The losses were concentrated principally in developed market equity exposures in the US with the gains coming almost exclusively from Asia and Japan (although there were also resilient performances from small company equity holdings). Bond managers across the credit spectrum had another positive month, underpinned as mentioned above, by central bank intervention in their markets. Convertible bond managers also delivered solid gains, whilst there was little impact from movements in other asset classes.
On behalf of the Saltus Investment Committee, November 2020
All authors have considerable industry expertise and specific knowledge on any given topic. All pieces are reviewed by an additional qualified financial specialist to ensure objectivity and accuracy to the best of our ability. All reviewer’s qualifications are from leading industry bodies. Where possible we use primary sources to support our work. These can include white papers, government sources and data, original reports and interviews or articles from other industry experts. We also reference research from other reputable financial planning and investment management firms where appropriate.
The views expressed in this article are those of the Saltus Asset Management team. These typically relate to the core Saltus portfolios. We aim to implement our views across all Saltus strategies, but we must work within each portfolio’s specific objectives and restrictions. This means our views can be implemented more comprehensively in some mandates than others. If your funds are not within a Saltus portfolio and you would like more information, please get in touch with your adviser. Saltus Asset Management is a trading name of Saltus Partners LLP which is authorised and regulated by the Financial Conduct Authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. Capital is at risk. You may get back less than you invested. Tax rules may change and the value of tax reliefs depends on your individual circumstances.
Find out more about our award-winning wealth management services…
Financial Advisory Firm of the Year
Client Relationships Award
Financial Services, Banking and Insurance Firm of the Year
Investment Performance Cautious Portfolios
Best Medium Firm
Investment Performance: Cautious Portfolios
Investment Performance: Balanced Portfolios
Financial Planning Firm of the Year: Small to Medium Firm
We are unconstrained, multi-asset class investors with an award winning track record. The asset management team serves both institutions and individuals. This focus and experience means our UK private clients have access to superior investment solutions that are typically unavailable to retail clients.
Our team of experts will partner with you to tailor a suitable investment mandate with an appropriate risk budget. Our Asset Allocation Committee shapes the core components of our investment portfolios before assigning capital to various asset classes through an allocation to third party managers.
We have a long track record of producing superior risk-adjusted returns for our clients. This is in part due to our ability to consistently identify third-party investment managers who outperform their benchmarks. We do this through a proprietary ‘Five Factor’ model designed to identify investment manager capability.
Environmental, Social and Governance
We believe in responsible investment management, and so assess Environmental, Social and Governance (ESG) factors are assessed prior to making any investment decision. We then continue to work closely with third party managers on an ongoing basis to improve their ESG performance.
Our expert investment management team has an established history of working in partnership with professional intermediaries. We help provide the support your clients may need and understand the requirements of each separate case prior to designing a suitable investment strategy.