22nd May 2020.

This will be the last of our Friday updates during this “health emergency”.  I hope you have found them helpful, passing over the fence a sense of our thinking as the weeks unfolded.

In mid-June we plan to be gradually returning to the office.  New infections are now very small in London – hopefully the rest of the UK will be in the same position soon.  Our first office task will be to put everyone on the scales and see who has been snacking at home!

Before turning to markets, two other important issues.

Firstly, it is Mental Health Awareness Week, something which has never been more relevant than today, outside wartime.  This is a difficult and lonely time for many, and it’s important to remember you’re not alone.  If you have the time, please do read Ruairi’s previous blog on mental health awareness.

Secondly, sadly there are those who will seek to take advantage of this extremely difficult environment, particularly new cyber scams and hacks.  Do have a read of this earlier blog from David (Watch out, watch out, there are scammers about), and do not hesitate to ask if you would like any more information.

Now to markets.

Undoubtedly some of you will have noticed sharp rises last Monday in some stock markets – as much as 5% in some cases.  The big news was of (another) miracle cure, this time from a company named Moderna.  It seemed to escape the notice of those charging in that the drug had been tested on a grand total of eight people – but let’s not spoil a good story with detail.  This kind of silliness keeps informing us that the bottom has not been seen for markets – over-optimism and denial are still evident, where panic is more typical at lows.

Another great indicator of not all being well was record buying of options by small traders – taking bets that the market will keep heading higher.  As one broker put it:

“When we look at those traders who are mostly wrong at emotional extremes… There is no data more worrying”

This is a buying panic amongst the least successful cohort of investors, and into the riskiest investments.  And it is a buying panic at a point when the US stock market is merely 13% below valuations seen before the Wall Street Crash of 1929.

These are just some of the reasons why we will recommend dripping back into chosen funds for most clients.

Turning to income funds, a significant proportion of UK companies have already cut their dividend payout.  Not all of them needed to do so, but some felt they should while accepting support from the Government.  It will not be a surprise if payouts from UK income funds are cut by 50% this year.

In Asia the situation is much less bleak, perhaps 20%.

But this is for the current year.  After income cuts in 2009 (in the region of 30% in the UK) the better funds were able to re-build their payouts reasonably quickly.  It is less clear how quickly they can do so on this occasion – to a large extent this depends on progress with the Coronavirus, particularly through next winter.

In the next week we are building out our research into these income funds, talking to quite a few income fund managers in the UK and beyond.  This is the last key element of our current research, which to this point has focussed on funds for growth, as you will have seen in our notes in prior weeks.

Once complete this will then inform your own adviser, who will be in touch personally.