Brexit is yesterday's news: UK equities are the talk of the town with plenty of value and opportunity
Now that Brexit is firmly yesterday's news, and within the UK we have made great strides in terms of the vaccine rollout to tackle the pandemic, UK equities now look to present a very different proposition. Our fund manager, Richard Warne takes a deep dive into UK Equities.
The World In A Week - Knitting Pattern
Data is confirming the pattern of the economic bounce back. As restrictions are eased, spending on services are increasing. Restaurants, leisure, and hospitality are the main beneficiaries, as consumers look to make up for lost time. This can be seen in the US payroll data that was published on Good Friday, where 916,000 jobs were added in March. The sector with the largest increase was leisure and hospitality. This is exactly what we would expect as the lockdown restrictions are lifted.
This joy is being delayed in Europe though, as the number of COVID-19 cases continue to rise, and additional restrictions are implemented. France announced a four-week lockdown and Italy is extending their current restrictions to the end of April. German Chancellor Merkel has also warned that further restrictions may be required in Germany. A sombre week when compared to the UK, where we enjoyed an Easter weekend with lesser restrictions.
However, the consequence of these lockdowns in Europe may mean a delay to easing restrictions for the UK population to holiday abroad. While this will be disappointing to many of us, it arguably matters more for Europe. Tourism is a significant part of the European economy, and while certain elements of demand are only delayed because of lengthened restrictions, holidays are time sensitive, and the summer could be lost if control is not established quickly.
While data is looking positive, policymakers are yet to take their foot off the gas. President Biden unveiled his once-in-a-generation infrastructure investment plan for the US, which will see almost $2 trillion pledged to rebuild roads, highways, and bridges. This is not a patch though, as the proposal, called the ‘American Jobs Plan’, is being used to confront climate crisis, curtail wealth inequality, and strengthen competitiveness.
The proposal will take eight years and generate millions of jobs, with an increase in corporate taxes over the next 15 years to help offset the cost. In reality, much of the tax increase is simply unwinding the tax cuts that President Trump introduced during his term in office. One thing is for sure, this will take considerable time to be signed off by Congress as everyone looks to amend the plan to benefit their own constituencies.
As we start the second quarter of 2021, there are a lot of factors to be weaved together before we can finally reach the light at the end of the tunnel, but the progress is encouraging.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 6th April 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - Stuck In The Suez
According to urban myths, it is said that when you are in London you are never more than 6ft away from a rat, and it appears that within emerging markets you are never more than two steps away from a crisis, as this week has proven with two events having hit the headlines. Firstly, in Turkey, President Erdogan, out of the blue, replaced the central bank Governor. Markets did not react kindly, with the Lira plummeting and yields on Turkish debt widening. Thankfully, this is an idiosyncratic event and there appears little risk of contagion. On a positive note, if the currency remains at its current levels, it will mean beach holidays to Turkey will be 10% cheaper, when such activities are permissible. In the context of the portfolios, this was a nonevent, but clearly more of an immediate consideration for those institutions with exposure to the region. The emerging markets both from a debt and equity perspective throw off challenges, but at the same time create many mispriced opportunities.
The second event is more comical in nature, but is far more impactful, which is a shipping container that since Tuesday has been blocking the Suez Canal, the world’s busiest shipping lane, causing huge delays and expensive detours. Lots of memes are spreading like wildfire across the Internet, the pick of the bunch is the caption - we all make mistakes, but at least they’re usually not “we can see your mistake from space” bad. With a satellite image showing the incident in all its glory, oh dear!
On the pandemic front we are definitely seeing two speeds taking place. In the US the vaccine rollout progresses at a great pace. However, the same cannot be said in Europe, where the infection rate has been picking up in France, Germany, and Spain. In the UK we are stepping ever closer to the easing of lockdown, but in Europe this looks to be pushed further out. One improvement this week has been the easing of tensions between the UK and Europe, de-escalating the dispute over vaccine export curbs. “Reciprocally beneficial relationship” to tackle COVID-19 was issued by both parties. Hopefully, the European authorities can focus on the job in hand of getting vaccines rolled out and progressing on the return to normal.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 29th March 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - Knowing the Price of Everything, but the Value of Nothing…
The last week in markets was quite typical of the environment we have observed for the year to date. There was not an awful lot of movement at the headline level, but quite a lot of volatility and dispersion of returns below the surface, which made precise positioning critical. Headline global equities, as measured by the MSCI All Country World Index (ACWI), were down -0.3% in GBP terms, while most forms of Fixed Income sold off as interest rates continue to rise in the US as market participants price in a robust economic recovery.
What we found to be particularly of note last week was the continued outperformance of “Value” equities, in excess of their “Growth” counterparts. As we approach the end of the first quarter of 2021, it is interesting to note how different this market has been versus what we observed in 2020. For the year to date, MSCI ACWI Value is up +7.0% in GBP terms vs a return of -1.7% for MSCI ACWI Growth.
On a stock level, names which exploded upwards in a pique of exuberance in 2020 have struggled this year with Tesla down -5.7%. ETFs such as the wildly popular ARK Innovation ETF are down -2.6%, while in the UK popular Funds such as the Baillie Gifford Global Discovery Fund are down -3.6%. This contrasts with a YTD market return (MSCI ACWI in GBP) of +2.7% and a return of +13.7% for our Value managers (Pzena Global Value in this instance).
What is really fascinating is the fact that Volkswagen shares have returned +78.5% for the year to date, driven by their increasing dominance in the electric car market. This return contrasts with Tesla’s negative performance year to date and is emblematic of the fact that VW is now outselling Mr Musk in electric vehicles in Europe. Volkswagen is valued at 7x the earnings it is expected to generate over the next 12 months, vs Tesla on 146x. This is really interesting because it illustrates that investors do not have to follow the herd and pay stonking prices to gain access to interesting investment themes such as the electric vehicle revolution. Kawasaki Heavy Industries is another interesting name held by our Nikko Japan Value Fund, which is in a prime position to take advantage of the opportunity presented by the advent of hydrogen energy but is valued on a price-to-book ratio of less than 1.
On the Fixed Income side, it has been interesting to see our Chinese Government Bond Fund (UBS China Bond) perform positively year to date, as bonds have sold off globally as interest rates rise. UBS is up +0.2% vs -2.7% for the Barclays Global Aggregate Index. Once again this demonstrates the importance of nuanced Active positioning in the current environment.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 22nd March 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - Fiscal Injection
Last week saw President Joseph Biden’s $1.9 trillion stimulus package passed by Congress, which has seen the Organisation for Economic Co-operation and Development (OECD) accelerate its global growth expectations to 5.6%. The OECD has also increased its US growth forecast from 3.3% to 6.5%. Americans will expect to see $1,400 paid directly into their bank accounts which should effectively increase consumer spending, keep businesses operational and boost economic activity. Most of the package ($750 billion) will support the continuation of the US vaccination rollout, with $600 billion set aside in the form of said stimulus checks. A further $400 billion will aid financially vulnerable households in the form of unemployment benefits of up to $400 a week and the final $150 billion is set to support smaller businesses with loans and grants. US markets welcomed confirmation of President Biden’s stimulus package with the S&P 500 returning +2.09% in GBP terms last week.
The UK’s gross domestic product is estimated to have fallen by 2.9% in January 2021, with the national lockdown reducing the levels of consumer spending and economic activity considerably. Elsewhere, the Governor of the Bank of England, Andrew Bailey stated that he is confident that inflation would not threaten price stability as consumer spending is expected to pick up significantly as we transition out of the national lockdown. The UK inflation rate rose 0.9% in the 12 months to January 2021, well below the Bank of England’s 2% target rate. Inflation is often measured by the Consumer Price Index (CPI) which measures the price change of a typical basket of consumer goods. This basket of goods has been rightly adjusted to reflect the recent shift in consumer spending habits which has included increased demand for hand-sanitisers and home exercise equipment.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 15th March 2021.
© 2021 Beaufort Investment. All rights reserved.
Lockdown investing: 10 wealth managers' top calls
CityWire Wealth Manager interviewed 10 wealth managers on their investment decisions since the first COVID-19 lockdown began a year ago.
UK economy shrinks by 3% during lockdown
The UK economy fell by 2.9 per cent in January, according to the Office for National Statistics.
The World In A Week - Carry On, Not Carried Away
We ended last week with a strong employment number for the US Non-Farm Payroll, adding 379,000 jobs, against an expectation of only 200,000. The US Non-Farm Payroll is a monthly statistic showing how many people are employed in the US by manufacturing, construction, and goods companies. It is primarily used as an indicator for the number of jobs added or lost in the economy over a one-month period and is a broad indicator of the US economy’s health.
This boost could reflect an increasingly successful vaccine rollout and easing of restrictions in a number of US states. Texas, for example, has lifted all pandemic restrictions on economic activity, to tackle both the effects of the extreme weather and the fall in the fear of the pandemic. This will be an interesting test case for policymakers to monitor.
The imminent round of stimulus from the Biden administration looks to add further fuel to growth expectations, with a significant part of the proposed $1.9 trillion fiscal stimulus plan likely to be passed in the coming days. With substantial pent-up consumer demand ready to be spent once restrictions are lifted, it is no surprise that growth expectations for the US continue to be revised up.
This all sounds positive. However, we have also seen an increase in government bond yields over the past few weeks, as expectations for earlier interest rate hikes are priced. A strengthening economy could mean the accommodative monetary conditions are tightened sooner than expected. It was fortuitous then that the Chair of the Federal Reserve was speaking last week. Jerome Powell’s remarks said very little that was new and gave no indication of easing their monetary policy programme early. Unemployment, although reducing, is far from their full employment target and bond markets are not being disorderly.
It would seem that as we near the end of the COVID-19 tunnel, we must steel ourselves against the conflicting indicators and trust in robust and appropriately diversified investments. The budget delivered by Chancellor Sunak shows that a long-term view is needed to navigate out of this crisis, with his ‘spend now, tax later’ roadmap.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 8th March 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - LatAm Shenanigans
February was generally a positive month for equity markets, but last week turned out to be quite a bumpy ride, particularly in the US, and notably within the technology sector. Albeit from low levels, we have seen a pick-up in government bond yields, with the expectation that central bank policy decisions will ultimately lead to inflation. The market has extrapolated that this will need to be countered with interest rate rises. With valuations on many technology darlings having become stressed, the market is now beginning to worry that rates and inflation could damage future growth and start taking flight into other areas of the market.
Outside of technology, stay at home themes have clearly been massive beneficiaries of the pandemic since last March, but last week saw a reversal of their fortunes with Working from Home and Stay at Home themed stocks down -8.5% and -8% respectively (source: Morgan Stanley), while more cyclical parts of the market sat comfortably in positive territory. Are we starting to see the first signs of the market leaving behind COVID-19 winners? If we look at the macro backdrop this is looking fairly robust and supported by fiscal and monetary policy. With the move up in yields, could this potentially be supportive of a shift in market sentiment? Higher rates have always been a risk to contend with but only recently have come to the forefront of investors’ minds, as the speed of the move has been sharp and fast. Investor positioning towards technology and momentum remains high, so it is something to keep a close eye on. As ever, all focus will be on the Fed and the tone of language of how they propose to manage these choppy waters.
As investors, we look for good opportunities at the right price, trying to ascertain what might be the turning point for an asset class that has previously been unloved and out of favour. As an Investment Committee, we have recently increased our allocation to UK equities as the headwinds from Brexit seem to have been removed and appear to be well-positioned in terms of vaccinating against the COVID-19 virus and potentially returning to normal. An asset class that is cheap relative to history and its peers. Sometimes, however, an asset class can be cheap and remain cheap for a reason. If we look at Latin America and Brazil as an example, these are markets that are notoriously volatile and not for the faint- hearted, which has been illustrated again over the last few days. When Bolsonaro took over the Presidency in January 2019, this was viewed as very market-friendly, and the market reacted accordingly, but last week he ousted the CEO of Petrobras and put in charge the head of the military. Truckers have been protesting about the rising cost of fuel and, with elections coming up next year, Bolsonaro does not want anything to upset his chance of re-election. This move is designed to put a control on the company and the oil price. Unsurprisingly, the Petrobras share price took a nosedive. Whilst we do not have any material exposure to the region, it is relevant in the context that politics can play an unfortunately large part on sentiment and impact markets, as witnessed by the fallout of the Brexit vote of June 2016. Watching out for opportunities and threats will always be the name of the game.
The World In A Week - Roaring Twenties 2.0
Last week saw Boris Johnson confirm that England would proceed to the second phase of the lifting of lockdown restrictions on 12th April, as non-essential shops, beer gardens, hairdressers and gyms would be allowed to re-open their doors. There is a general expectation that consumer spending will pick up sharply as British people have been starved of access to shops, leisure activities and pubs. According to the Office for Budget Responsibility, estimates suggest that an extra £180bn of savings will have been generated during the lockdown by June 2021. There have been significant worries that inflation will begin to pick up as consumer spending frantically increases and this could be the start of a remarkable period of consumption, which could resemble something similar to the “Roaring Twenties” frenzy. This period, starting in the 1920’s, saw accelerated consumer demand in leisure and cultural activities following years of hardship and loss from World War 1.
We are in a similar situation today, having faced travel restrictions and adhering to social distancing protocols to suppress the spread of the COVID-19 virus. There are clearly some distinct similarities between the “Roaring Twenties” and current day circumstances with significant pent-up demand expected in the travel and leisure industries. Tourism and luxury fashion are two industries that are expected to thrive as lockdowns begin to ease and vaccine rollout increases.
Looking ahead to the rest of the week, today is the start of the US corporate earnings season with the S&P 500 hitting fresh highs on Friday as markets prepare for the release of company Q1 financial results. The S&P 500 closed +3.4% last week, outperforming the global equity benchmark MSCI World Index which was up +3.1%.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of Monday, 12th April 2021.
© 2021 Beaufort Investment. All rights reserved.