7th October 2020
Like the sailor with a clear destination and route map, successful advisers and investors must adapt to storms along the way. As you already know, we saw the growing storm clouds before the pandemic hit – the vulnerability of investment markets to some shock was absolutely clear.
Slowly but surely we can visualise calmer waters. A key part of our role is to anticipate those and, so far as possible, have your investments positioned to benefit. This is not easy.
Because it is not easy we have spent the last few months expanding our research, so that we can do two things.
Firstly, quickly observe a positive, and sustainable, change in investment trends. Secondly, identify the funds most likely to generate better than average growth.
Right now most of those investment trends are subdued. You will recall that in one month in the Spring markets around the world fell in the region of 35%. This was followed by a decent bounce, but it ran out of steam, and a sideways and downwards bias has taken hold since May/June.
There are some wide variations around this central picture.
For example, some outstandingly managed funds focussed on the U.K. stock market appear tremendous value – some are 20-30% below their level in January, when they already looked decent value. This is one area where we are keeping a very close look out for signs that this period of torpor is changing for the better.
In contrast, the US stock market is back around all-time highs. The nature of our considerations here are of a completely different nature.
An even larger number of valuation indicators are higher than before both the 1929 Crash and the bursting of the technology bubble from December 1999. The investment mania in the US is more zany than the tech mania in the late 1990s.
If history is a decent guide, the latter will result in falls in the US market of at least 50%, and nearer 80% in some sectors.
There are two additional unknowns in the US – the Presidential election result and the path of the coronavirus, both capable of causing some chaos in the months ahead.
This focus on the US is not obsession in our part, but simply because when the US tumbles, so will the U.K. stock market and most others in the world, at least in the short term.
Although virus infections are rising in most of the Western world, treatments are also working much better for those who become hospitalised. This does allow us to glimpse a brighter Spring once we are through the spluttering Winter months, with or without the impact of a widely available vaccine, which seems very unlikely within 6 months.
Returning to the U.K., the Brexit outcome should be known by the end of October, and this uncertainty has been compounded by an increasingly accident-prone Government.
So, on balance, it does not feel like a time to be gung-ho.
There is a lot happening which could add clarity to the above in the weeks just ahead, so expect more regular notes as events unfold.
As we have said before, if you are feeling more immediately optimistic, and wish to have a greater investment exposure, do make sure to talk to your usual adviser.