We can now assume things will return to something like normal within the next few months. People have money to spend.
How have the markets performed over the quarter?
Well, the arrival of the vaccine has caused markets to jump. The UK stock market was one of the worst affected by the pandemic As a consequence, it rebounded strongly as news of the vaccine was finally released. The FTL share index climbed by 13% over the quarter, a huge return, which adds on about 5% more than the world index.
In bond markets, gilts were little changed. Though bonds issued by corporations strengthened in price as well. All in all. It was a really good quarter for our portfolios.
Why have markets done so well?
COVID infections have reached a new high and another lockdown has been imposed. The economic costs of battling the pandemic are simply enormous, but these will largely be shouldered by the government. Markets are a forward-looking mechanism and the vaccine provides a defined timeline for the pandemic.
We can now assume things will return to something like normal within the next few months. People have money to spend. And once the epidemic is finally brought under control, confidence is growing that the economy will begin to recover very quickly.
What changes to the portfolio have you made?
The most important change that we’ve made to the portfolio was to increase our weightings in UK equities. The UK market was under a cloud during September and in October. And we took the opportunity to purchase a footsie 100 index tracker at very favourable levels. Markets have subsequently surged are already showing a very healthy profit on the new purchases.
This has been an important quarter for political events. What are the implications of Brexit and the US Elections?
It is great to finally get these political uncertainties behind us. As we expected, there were some worrying days during the Brexit negotiations, but a deal finally got made. It’s important to stress that from an economic standpoint, this was not a great outcome, though it will be better than a no-deal. There will be some short-term costs in implementing the new trading arrangements, but at least it brings some clarity for business who will now be able to plan ahead for future.
The US election proved to be a bitter one. The arrival of Joe Biden in the White House should bring more stability to the world stage. Biden intends to increase spending and increase taxes on the wealthy, but his approach is going to be quite conservative. Compared to Trump he will be less concerned about keeping the stock market at a high level, but at the same time, he will bring greater stability and be more predictable. Both the Brexit resolution and the US election removes uncertainty and therefore reduces the risks for investors.
What is the outlook for 2021?
We’re now in an economic recovery period and these often produce the most sustainable gains for the stock market. Profits will rebound and improving business conditions should improve confidence. Interest rates look set to remain at very low levels, and investors will be willing to pay higher prices for sources of yield as a consequence.
The Brexit resolution should bring us greater clarity on the UK economy, though it will take a little time for the full implications of the deal to be felt. We are therefore more positive on the markets for the year of 2021.
Our main concern lies with the valuations, particularly the leading technology companies in the US which have become increasingly more expensive as pandemic has progressed. Expectations for future profit growth, and now very high and leave little margin for disappointment. We have limited our exposure to these companies in our portfolios that we fear that any turbulence here could knock share prices and other parts of the market.
Park Hall Financial Services Limited is authorised and regulated by the Financial Conduct Authority.
The information within this article is for information purposes only and does not constitute investment advice. They represent the opinions of the fund manager and those of Square Mile. It does not contain all of the information which as an investor may require in order to make an investment decision. Any reference to shares/investments is not a recommendation to buy or sell. If you are unsure, you should seek professional independent financial advice.
Past performance is not a guide to future performance. The value of any investment and any income from it is not guaranteed and can fluctuate depending on investment performance and other factors. you could get back less than you invested.
Some investments, e.g. property, may be difficult to sell and will be subject to market conditions at that time. Their value is the opinion of an independent valuer.
Any reference to taxation is dependent on your own particular circumstances which are subject to change.
