Markets have become calmer over the last few weeks, so we’ve taken the opportunity to implement a number of changes to the portfolio.
How have the markets travelled over the last quarter?
Markets around the world have rallied strongly this quarter, particularly, the US tech giants. Taking, say Amazon and Apple now, well, the market capitalization of those two companies now exceed all the companies listed on the London stock exchange. It’s quite remarkable.
Economic activity around the world is recovering as shutdowns are relaxed. But I think the main reason for the recovery has been the determination of governments and central banks to support businesses through thick and thin and to make offset the worst effects of the shutdown. Despite this, the UK stock market is still down about 17% from the beginning of the year.
Is the worst now behind us?
Well, I wish I could say with confidence, that I think the worst is now behind us, perhaps in the financial markets possibly, but there’s still going to be a long road ahead of us all. In the near term, many businesses will benefit from the pent up demand that was built up during the shutdowns. However, things are not about to return to normal anytime soon, Businesses are going to have to adapt to the new situation and respond to the disruption that their customers have felt as well as their supply lines and finances.
It’s encouraging that the virus seems to be coming under control inside of Europe, but I’m afraid we can’t say that about America at the moment. There they’re going to have periodic flareups and businesses again are going to have to adapt to get around these issues.
What changes have you made to the portfolio?
Markets have become calmer over the last few weeks, so we’ve taken the opportunity to implement a number of changes to the portfolio. We’ve exited various strategies, which we feel won’t do particularly well in the new environment and switched some of our fixed-income funds towards those that have better prospects.
As a defensive measure, we’ve also increased US dollar exposure. The pound could weaken further if the bank of England decides to push interest rates in the UK into negative territory. As well as that we’ve got Brexit overhanging the situation. Towards the end of the quarter, following the strong rally in markets, we’ve looked to trim some equity positions across the portfolio as well.
We’ve also introduced a sustainability fund into the portfolio. We think one of the medium-term consequences of this crisis, which will be a much keener focus on the environment and a wider appreciation of all the stakeholders affected by businesses. As our confidence in this theme develops over time and grows. We may look to add further companies, which I’ve already got a head start in doing this.
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