Investment News & Views

Monthly Portfolio Update
June 2020

As many of the countries around the world are starting to ease lockdown and open their economies, stock market values are continuing to rise and volatility has fallen to levels last seen around Feb 26th. As markets continue to recover we have taken this opportunity to revise our asset allocation in line with our views about prospects for different recovery paths in different regions of the world.

While Covid-19 is still a threat, countries have lower new infection rates and lower numbers of deaths which allow them to cautiously reopen manufacturing, non-essentials shops, and schools. New social distancing measures will help reduce infection rates and allow some semblance of normality. Although the possibility of outbreaks is always a possibility, most developed countries now have the ability to test, track, trace, and isolate new cases enabling governments to contain new infections.

Medical advances in treatments as well as vaccines are occurring throughout the world and at record breaking pace. The UK has recently approved the use of Remdesivir by Gilead Sciences in the US. This drug, originally used in the fight against Ebola, has been found to shorten recovery time by about four days and is already approved and in use in both the US and Japan. There are also studies researching the use of antibodies from recovered patients to help in the treatment of Covid-19.

Approximately 80 groups around the world are working on a potential vaccine. AstraZeneca have announced that they would have at least 400 million doses of the vaccine which they are developing with Oxford University by September, but they have yet to conclude on its effectiveness. Imperial College London has also been working on a vaccine and is looking to move into trials by mid-June. While Moderna in the US has had successful results from a small sample of volunteers with the mRNA-1273 vaccine. With scientists and medical researchers around the world working on this problem alone, breakthroughs for both treatments and hopefully eventually a cure will happen faster than ever before.

The reduction in coronavirus cases will lead to recovery. Different countries have handled the outbreak differently. Some, like New Zealand, has almost eradicated the virus entirely. Others such as Korea and Germany have been effective at testing, tracing, and isolating cases. This has allowed them to recover much more quickly than others. The amount of early intervention also has parallels to how well a country’s economy will be able to recover. Those countries that have been able to help prop up their economies while on lockdown with higher levels of government bail outs, should be able to ease back into production with lower levels of unemployment and smaller numbers of bankruptcies.

Although greatly impacted by the coronavirus, the markets which have recovered the strongest and the quickest have been the US and international market funds. The US has had over 100,000 people die from the coronavirus, unemployment has increased at record pace, and around 20% of those that are of working age have now filed for unemployment in the past 8 weeks. To combat this, the government’s stimulus packages have helped to keep markets buoyant. The top holdings in the American funds are also predominantly tech based which unlike many other sectors received a large boost from the pandemic.

In an election year, we expect that the Republicans and President Trump will continue to support US markets. While many commentators believe President Trump has not handled the coronavirus well, he is continuing to hold on to the support of the economy as one of his priorities. International funds hold a large percentage of US companies, so we have decreased this allocation while increasing the US allocation.

The UK is cautiously reopening as other countries throughout Europe have. The furlough scheme to help support employees and the self-employed has helped to minimise potentially high unemployment levels and should help to allow the economy to get back to work quickly again. Although a cautious reopening will boost markets, the outbreak in Britain was one of the worst throughout Europe so it may take longer to reopen than in other countries. There are also ongoing issues with Brexit. Still, the Bank of England and the government have offered unprecedented levels of support. The Bank of England stated earlier this month that they expected the UK to contract by 14% in 2020 with growth returning in 2021. The Bank’s chief economist, Andy Haldane, has recently stated that the recovery is looking a bit better than predicted, although it is still expected to be a long, protracted recovery. Our UK allocation within the Guardian and Foundation portfolios is the second largest, but in most portfolios, we have reduced this slightly.

We have left the European allocation largely unchanged in most portfolios. Although the eurozone economy is likely to contract between 8-12% this year, the ECB is supporting the economy by buying 1.1 trillion euros in bonds this year to keep credit available for governments, households, and companies and has pledged to do more if needed. The EU commission has also announced a 750-billion-euro stimulus package to help European economies recover from recession.

Our emerging market allocation has remained generally unchanged. While we believe that some emerging markets countries will struggle with reduced world demand, China is also included in this sector. We believe that China is still heavily integrated into world supply chains and as such will continue to be an important market to include in our allocations. We have also slightly increased our Pacific allocation due to their quick recovery from the virus and return to relative normality.

The strongest upward trends in recent weeks have been in the US, international and Japanese funds. However, Japan has not been one of the highest returning markets. We have kept the Japanese allocation at the same levels as it was before.

We have removed property from our allocation. We feel that although this market has recovered recently, this was most likely to correct the initial market overreaction. With many working from home, demand for office space will continue to be low. Home property markets will also be one of the last sectors to recover with persistent uncertainty and high unemployment.

We started and have continued to include a gold mining fund to our allocation. This has had one of the highest returns in value since the beginning of April and has continued to rise with equity markets. We have kept this allocation at modest levels because it is a volatile market and its price can drop as well rise quickly.

Although we expect there will still be much uncertainty and market volatility, our Guardian portfolios are now at 100% of all our equity market allocations. Therefore, for the time being, the Guardian and Foundation portfolio allocations will be the same. Much like test, track, and trace; we will continue to monitor the markets, run our trend following reports, and will be ready to make any necessary adjustments as required.

Heritage Portfolios

We updated our Heritage portfolios last week with new funds and asset allocations.
Please find the details here: Heritage Asset Allocation Update

Heritage Dividend Portfolios

Our new Heritage Dividend Portfolios are now ready to go live. Investment Trusts, unlike OEICs, do not have to distribute all their income and are better placed to withstand any loss of income from dividends which is likely to occur this year. The Heritage Dividend Balanced and Cautious portfolios have been designed to provide a natural income of over 3.5% and 3% based on their historical yields.
Please get in touch for more information. Contact Us.

Standard Life

We are now LIVE on Standard Life for our Guardian, Heritage, Heritage Dividend and Foundation portfolios. We have a platform document which lists the platforms on which each of our portfolios are available, platform trading charges and transaction turnaround times.
If you are interested in a copy, please let us know! Contact Us.

  • Tuesday, June 2, 2020

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author

Tomiko Evans

Chief Investment Officer

Tomiko is Chief Investment Officer of Crossing Point and holds the IMC qualification for Investment Management.