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Jupiter Asset Management – Active Minds

Please see article below from Jupiter Asset Management which provides their latest market views – received today 27/11/2020

Active Minds – 26 November 2020

James Moir – Analyst, UK Growth

The normalisation of UK politics has begun

James Moir, Equities Analyst, UK Growth, gave an update on how the UK market has reacted to news flow in November. The Covid crisis has had a particularly severe impact on the UK market, given the relatively high weighting to oil & gas, financials and miners. As such, it has rebounded more than most developed markets this month on the back of the positive vaccine developments.

Although the bounce back has been strong, James pointed out that sectors such as oil & gas and banks are still significantly down year-to-date. James gets the sense that there has been a bottoming out of assumptions for the energy stocks, while the absolute bear case for bank credit losses might be avoided now that vaccines are imminent.

In terms of style, it has undeniably been a good month for Value, but Growth stocks in the UK have nevertheless delivered absolute gains this month. In any case, the winners and losers from Covid haven’t neatly aligned with the Value/Growth divide, with James and the team identifying many companies they consider long-term Growth stocks that have been adversely impacted by Covid and have had a strong November.

Company news is fairly thin, given that this isn’t reporting season, but there have been a couple of M&A deals that are notable for being domestic-focused UK companies that are being acquired ahead of Brexit. 

Turning to Brexit, James sees it as significant that a normalisation of UK politics appears to be underway. In the past month, the UK government has announced a 10-point plan on the environment, and increased the defence budget by almost 10%. Leaving the detail of this spending aside, James said it is important that the UK government is now being more active on priorities beyond Brexit, with many issues long overdue for being addressed, and that should be encouraging to all investors in the UK market.

Ivan Kralj – Assistant Fund Manager, Absolute Return

Is this the start of a prolonged rotation back into Value?

Ivan Kralj, Assistant Fund Manager, Absolute Return, shared his thoughts on the ‘Growth to Value’ rotation narrative. Although some of the daily moves over the past few weeks have been extraordinary, in magnitude and in the context of any longer timeframe, those moves were mere blips, said Ivan. He continues to see huge gaps between share price and valuation, and massive spreads between companies that are perceived as being ‘fit for the future’ which are trading on triple-digit P/E ratios and price-sale ratios above 30x, and those that are viewed as ‘boring’, asset-heavy companies which are trading on historically low single-digit P/Es and offering around 10% dividend yields.

So, why is this happening? As Value investors are facing large redemptions and are forced to liquidate positions, prices are being driven down. Ivan noted a recent academic paper that found how surprisingly price inelastic the stock market is, and that flows in and out of the market are having a significant effect on price – this seems to confirm that it’s liquidity rather than fundamentals that is driving many of today’s moves, said Ivan. However, he thinks it’s wise to assume that valuations will one day matter once again. Market experience over the past decade doesn’t mean that anything has fundamentally changed, even though valuations have been poor predictors of share prices over that period. There’s a century’s worth of quantitative and behavioural evidence that suggests investors tend to under-price stocks with the poorest prospects and over-price those with the most promising prospects. 

While it’s too early to tell if a prolonged rotation back into Value stocks has begun, Ivan thinks Russell Napier’s recent essays provide the most compelling narrative in terms of potential catalysts. Napier argues we’re transitioning from a new era where governments are seizing the money creation mechanism from central banks, and they’re incentivising commercial banks to lend to businesses and consumers in the real economy, through various government-backed lending programmes. That should create money, potentially leading to inflation and nominal economic growth. In that scenario, said Ivan, if inflationary expectations were to change then Value stocks should do really well.

Patty Cao – Assistant Fund Manager, Emerging Markets Debt

Goldilocks scenario supports emerging market debt in 2021

The election of Joe Biden as US president has been positive for emerging markets (EM) in that it potentially reduces trade tensions and brings a more conciliatory foreign policy, and the vaccine news has also provided a boost, said Patty Cao, Assistant Fund Manager, Fixed Income.
Inflows have reached a three-month high in emerging market debt, and net flows have turned positive for the year. Last week saw inflows of $3.2 billion into the asset class, split evenly between local currency and hard currency, Patty said, citing JPMorgan data.

These trends should continue next year, in her view. The team is expecting a Goldilocks scenario (not too hot, not too cold) for EM, a year of repair and renewal. Economic growth should improve sharply, with China and India each forecast to expand by around 9%, and rebounds elsewhere as vaccines roll out and markets and economies come back to life.

There is a cyclical upswing in growth, and there is plenty of support from central banks across the globe, Patty said. This should keep the US dollar relatively weak and inflows into the asset class robust, which is supportive of asset prices.  In her view it makes sense to stay bullish on EM credit, and local currency and sovereign debt.

Colin Croft – Fund Manager, Emerging Markets

Low cost, simpler vaccines are great news for emerging markets

As you would expect, the positive news flow around vaccines has been positive for Emerging Market (EM) equities, said Colin Croft, Fund Manager, Emerging Markets. The data from the Oxford University vaccine has been especially impactful, he said, as the relatively low cost and simpler logistics (the vaccine is stable at normal fridge temperatures) compared to the earlier announced results should help wider distribution across emerging markets.

This moves us towards a recovery scenario which ought, over the next 6-12 months, to drive outperformance of the most beaten down and economically sensitive sectors such as airlines and banks, said Colin. Some of the banks in emerging markets have been relatively resilient anyway, he highlighted, without having to raise equity and making significant upfront provisions early in the pandemic. This means that several of them are already showing a rapid rebound in earnings as provisions come down. 
Colin also touched on the US election. As we inch towards a Biden presidency, Putin is one of only three major foreign leaders yet to congratulate him. There have been some worries that Russia might face the risk of more sanctions once Trump is gone, so last week Colin joined a call with a former US Ambassador, who is close to the Biden team and designed the current Russia sanctions regime back in 2014. His view was that Russia doesn’t face an immediate threat of new economic sanctions – while Biden was sceptical of Obama’s reset and is unlikely to try something similar, he is also unlikely to escalate sanctions without a fresh reason to do so. 

So, a Biden presidency might not be as bad as feared for Russian assets – but the caveat is that this will depend on what Russia does – if they do cross certain lines again, then there would be a greater likelihood of better-targeted US action, that is better coordinated with allies, than under Trump. So Colin’s view is that if something does happen he’d be more inclined to turn bearish on Russia, but for the time being Biden shouldn’t necessarily be seen as a negative for Russian equities. 

Please note: Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances.

A good update from Jupiter Asset Management’s fund managers, providing a useful insight into the markets.

Please continue to check back for our latest blog posts and updates

Charlotte Ennis


Team No Comments

ESG… the ‘new normal?’

Firstly, yes, this blog is called ‘the new normal’ and yes, I know you may be fed up of this phrase (believe me, I am too!), but dare I say it? Is ESG ‘the new normal’ when it comes to investing?

You may have seen some of our posts over this past year on ESG and sustainable investing.

We posted a 3 part series over the summer called ‘What is ESG? – An Introduction’, this was written by us to help our clients really understand what ESG is, and it’s a good thing we did… a recent study was undertaken in this industry and it was found that the majority of clients didn’t understand what ESG was, in fact it was found that people thought it stood for ‘ethically sourced goods’.

Google searches also show an increase of 216% in the term ‘ESG’ since 2018. This shows if people don’t know what it is, they want to learn.

Over the summer we wrote;

What does ESG stand for?

ESG stands for Environmental, Social and Governance

But what is it?

Investopedia definition for ESG is;

‘Environmental, social and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.’

ESG is more of a theme or a set of principles to follow rather than a single set principle.’

In case you missed it, please revisit this blog series using the following links: What is ESG? – An Introduction – Blog Series – Part 1, Part 2 and Part 3.

One Planet, One Society, One Economy

ESG is a set of principles throughout not just investing, but throughout the world.

Climate change is a factor within ESG principles, but why is it important to focus on climate change?

Well we are one planet. We are one society and one economy. Yes, I am aware that sounds very ‘tree hugger-ish’… but look at how issues caused by climate change can affect society and the economy.

You will have seen hurricanes, floods, the wildfires in California and Australia on the news over the past few years. These are all driven by global warming. Since 1980, the cost of weather related catastrophises has been over $4,200Billion.

Boris Johnson recently announced that the aim is for the UK to have no sales of new fossil fuel cars by 2030.

Climate change is not an abstract future concept anymore and ESG isn’t just the latest trend, it is a future state of being, it’s an input into the outcomes of the future and it’s about companies embracing opportunities and making changes now to invest in the future.

The concept of ‘ESG’ or ‘ethical’, ‘socially responsible’ isn’t new.

Over 30 years ago, in 1987, there was a study by the Brundtland Commission called ‘Our Common Future’ which said that;

‘Sustainable development meets the needs of the present without compromising the ability of future generations to meet their own needs, guaranteeing the balance between economic growth, care for the environment and social well-being’

ESG has been gaining momentum for a while now as climate change and other social issues presented themselves but then of course, the pandemic hit.

Many investors probably assumed that the ESG focus would fade however it was only strengthened, with people looking at how everybody working from home would reduce carbon emissions, international travel was halted which again contributed to the drop in carbon emissions and early on in the pandemic when companies had to send employees off to work at home or on furlough and their mental and physical wellbeing became a focus.

Sustainable investments were once few and far between and usually meant sacrificing returns in order to stand by your beliefs, but these days, you would be hard pressed to find a company or an investment that doesn’t have some form of ESG policy or statement. Of course some may just be doing this to ‘tick the boxes’ but some will be actively involved in ‘doing the right thing’.

ESG has momentum now, we no longer think you have to sacrifice returns either!

As we have said before, ESG is not a tangible ‘thing’ that you can see or hold, it is in fact a complex interconnected system of ideas and processes.

Think of it as a journey, rather than a destination.

Andrew Lloyd


Team No Comments

Sunak pledges increased spending on jobs, housing and infrastructure

Please see below commentary received from AJ Bell this morning which highlights key points for investors on the Chancellor’s spending review.

After postponing the Budget earlier this year, and with public sector borrowing at a peacetime high, Chancellor Rishi Sunak’s spending review was keenly awaited.

While the health emergency is not yet over, despite over £280 billion of spending on health and employment measures, ‘the economic emergency has just begun’ according to the Chancellor.

UK output is expected to shrink by 11% this year, the most in history, with next year forecast to see a rebound of 5.5%, and by 2025 the economy will be 3% smaller than estimated pre-pandemic.

Sunak promised another £18 billion to help the NHS fight the virus, along with £30 billion in extended furlough payments, restart programmes, local council grants and rail subsidies, to help firms in hospitality, staffing and travel.

Also, as part of a ‘once-in-a-generation’ £100 billion infrastructure plan, there is a big increase in spending on public services, building new schools and hospitals, hiring more nurses, recruiting more police officers and building more prisons, which will benefit the outsourcing sector.

Spending on roads and other transport schemes to ‘level up’ the regions is good news for infrastructure firms, while on top of Help to Buy, which is estimated to be worth £12 billion, there is a new £7 billion national housebuilding scheme and planning regulations will be eased, all of which will be music to the ears of the housebuilders.

The UK economy requires continuous support from Government in order to recover from the effects of the pandemic. Please check in again with us soon for further interesting and relevant content based on world-wide events.  

Stay safe.



Team No Comments

Brooks Macdonald Investment Bulletin

Please see the below investment bulletin from Brooks Macdonald:

What has happened

Despite building optimism for 2021, markets still have periods where the near-term COVID realities are enough to derail the rally. Yesterday was such a day as COVID cases rose in the US and economic data, specifically US jobs data, deteriorated for the second week running. Today the US market is closed for Thanksgiving so liquidity will be lower and many in the US take tomorrow as a holiday so trade volumes will be quieter coming into the weekend.

FOMC Minutes

The rate setting body of the Federal Reserve issued the minutes for their meeting on the 4/5th November yesterday. Interestingly the committee described current financial asset valuations as ‘moderate’ relative to interest rates implying the central bank could continue to add accommodation without distorting asset values. The main point was that the current level of asset purchases was appropriate but that the bank left open the possibility of additional stimulus if the economic situations deteriorated. Equally, the Fed discussed updating their forward guidance ‘fairly soon’ with rates expected at their lower band for the foreseeable future. There are many question marks over the extent to which fiscal policy will continue during 2021, however central banks are expected to continue to be highly accommodative given elevated unemployment rates and forward-looking inflation that remains below target.

UK: Spending and Brexit

The UK issued the latest OBR forecasts alongside the spending review with the OBR forecasting a 20/21 budget deficit of 19% and debt-to-GDP to rise to 105.2%.The theme of yesterday was fiscal ‘consolidation’ rather than ‘tightening’ which is to be expected given the UK is likely to be in an era of rolling lockdown restrictions until the spring. The move away from the fairly unfettered fiscal spending earlier this year is perhaps a little early given high unemployment rates, but the UK Government has made it clear it views these elevated debt-to-GDP levels as a long term risk. Meanwhile Brexit talks ebb and flow with yesterday sounding less positive as EC President von der Leyen said ‘I cannot tell you today, if in the end there will be a deal.’

What does Brooks Macdonald think

Both the UK and EU are arguing that the other side is dragging its feet over Brexit talks with the EU yesterday blaming the UK for adopting an uncompromising position. With just over a month to go, business confidence is wavering with corporates struggling to work out what the trading environment will look like in January, not only due to COVID restrictions but also Brexit.

Please keep checking back for regular investment updates and content from us.

Andrew Lloyd


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PruFund – Quarterly Review Update – November 2020

As you are probably aware by now, one of the key features of the PruFund range of funds is that the funds aim to provide a quoted gross investment return which they call the fund’s Expected Growth Rates (EGRs) and these are based on their long-term (15 years) market expectations whilst also providing a smooth investment journey. The performance of these funds typically tend to lag a rapidly rising market and also a rapidly falling market.

The PruFund’s EGRs are reviewed on a quarterly basis (although some series of funds are reviewed monthly) and Prudential have today confirmed that there are no changes to their EGRs at this time.

Prudential have also held their quarterly performance review of the PruFund range of funds and I am pleased to confirm the following upward Unit Price Adjustments have been announced:

Why has this happened?

Since August, Capital Markets have broadly continued to recover, albeit, with considerable volatility, the recovery in markets since August can be seen in the chart below:

As you can see from the above, Value stocks have been one of the key drivers in returns generated in comparison to Growth stocks. Also, I think it is fair to say that the recent announcements of multiple vaccines have also helped drive some of these returns.


This is really good news and another step in the right direction. The fact that the EGRs have been maintained also goes a long way into showing that Prudential are standing by their long-term views of markets and the returns they aim to provide.

The key thing to remember is that although the PruFund range of funds aim to provide a smooth investment, they cannot defy gravity and when markets see rapid falls or rises, the PruFunds funds will eventually follow suit.

There will be greater detail provided by Prudential in their next Webex update which they will hold next week and we will endeavour to communicate this information to you as soon as possible.

Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.

Please keep safe and healthy.

Carl Mitchell – Dip PFS

IFA and Paraplanner


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Brooks McDonald Daily Investment Bulletin 25/11/2020

Please see below for Brooks McDonald’s latest Daily Investment Bulletin, received by us this morning 25/11/2020:

What has happened

The US market hit another all-time high yesterday as the vaccine backdrop mixed with positive news around the US transition and expectations that Janet Yellen will be appointed Biden’s Treasury Secretary. The bias towards non-tech stocks continued with the equal weight US market outperforming the traditional index yet again.

Vaccine update

As more vaccines are revealed we expect the pace of news flow in this area to increase and yesterday Sinopharm submitted an application to bring its vaccine to the Chinese market. The Sinopharm vaccine has already been approved for emergency use and has been rolled out quite widely already. Official approval would also open the door to exports to the number of ASEAN countries that have bought the vaccine. This could be a meaningful step for countries without access, either due to economic or political factors, to the cheap Oxford/AstraZeneca vaccine. On the latter vaccine we saw information that the half dose followed by full dose combination which achieved 90% efficacy was only administered to those under 55. This may suggest the population wide efficacy of that strategy is far lower but that isn’t necessarily a problem. Higher cost (financially and logistically) vaccines with high efficacy can be used for those most vulnerable but the cheaper vaccines with equivalent efficacy only in younger cohorts, can be used for herd immunity.

UK Spending Review

Today will see the long-awaited announcement from the UK Chancellor on the state of the UK’s Public finances as well as detailing some short-term next steps. Importantly this is only a one-year review which has been scaled down given the uncertainties of COVID (and indeed Brexit). The tone of the announcement is likely to retain a focus on supporting the economy and jobs short term with the FT reporting that a £4.3bn employment plan will be revealed. That number is however relatively small compared to the numbers in March and this reflects the new context of a far tighter fiscal backdrop coming into 2021, something that will be outlined during the speech.

What does Brooks Macdonald think

The formal budget was deliberately pushed back as the UK economy simply couldn’t handle fiscal tightening when we are in a period of rolling lockdowns. Even next year the government will need to strike a cautious balance between getting public finances back on track and not derailing a delicate recovery which would ultimately generate a need for more fiscal support down the line.

These articles provide concise and well-informed views that cover the whole of the market and are useful to maintain your up to date view of the markets globally.

Please keep reading our blogs regularly to give yourself a holistic and up to date view of the markets.

Keep safe and well,

Paul Green


Team No Comments

Brewin Dolphin – Markets in a Minute

Please see below the latest ‘Markets in a Minute’ update from Brewin Dolphin – received last night – 24/11/2020.

Brewin Dolphin – Markets in a Minute

Equity markets have been mixed over the past week as positive sentiment surrounding vaccine news gave way to worries about the near-term economic impact of the pandemic and associated lockdowns.

Brexit news has also been mixed, with reports of progress countered by reiterations of sticking points around fishing and state aid. There is a deadline of this week to strike a deal but it may well be pushed back. In the US, President-elect Biden has now been given the go-ahead to begin the transition process, as President Trump’s legal efforts to get the election result overturned all appear to be failing.

Last week’s markets performance*

  • FTSE100: +0.55%
  • S&P500: -0.77%
  • Dow: -0.73%
  • Nasdaq: +0.21%
  • Dax: +0.46%
  • Hang Seng: +1.12%
  • Shanghai Composite: +2.04%
  • Nikkei: +0.55%

*Data for week to close of business on Friday 20 November.

Stocks rally at start of week

Global markets largely rose yesterday after more positive vaccine news, although stocks were mixed in the UK thanks in part to a stronger pound. The FTSE100 closed down 0.28% at 6,333.84 as the pound rose on Brexit hopes, while the more domestically focused FTSE250 rose by 0.39% to 19,582.35. Sterling gained 0.17% against the dollar, rising to $1.3298, and by 0.37% against the euro to €1.1242.

In Europe, shares were up in early trade but faded towards the close, with the pan-European Stoxx 600 closing down 0.2% and the Cac-40 closing 0.08% lower. In the US, the tech-heavy Nasdaq closed up by 0.22% but the more ‘old economy’ Dow gained 1.12%.

Overall trends in the markets showed a continued outperformance of stocks that are expected to benefit from life returning to normal, such as energy, financial stocks and industrial companies, while the tech sector lagged, since it has benefitted so much from the lockdowns.

Economic data shows slowdown in UK, eurozone

Closely watched surveys of business activity suggested the UK was slowing rapidly in November while the US was performing better. The flash Purchasing Managers’ Index for the UK services sector, which covers leisure and hospitality, fell to a reading of 45.8 in November, its lowest for six months, as the second lockdown took hold. Any reading below 50 suggests business activity is falling compared to the previous month.

The manufacturing sector index was stronger, rising to 55.2 from October’s 53.7, as many firms build up stock ahead of the Brexit deadline.

However, the eurozone saw an even worse reading on its services sector, which hit a level of 41.3, lower than expected due to the severe lockdowns imposed across the continent which has forced the closure of so much of its services economy.

The near-term outlook is likely to remain weak but the stock market may look beyond the short-term data and focus on the vaccine news, which looks increasingly likely to bring a sense of normality back next year.

Source: Refinitiv Datastream, Brewin Dolphin Nov 2020

Vaccine upside

The better news for the pound is the continued positive vaccine news. Last Monday we had confirmation that both mRNA-based vaccines (Pfizer and Moderna) have similarly high levels of efficacy of 94%-95%. Some more details from Pfizer and BioNTech later in the week provided further encouragement in that the jab shows 94% efficacy in those aged 65 and over.

The Oxford/AstraZeneca team yesterday announced initial findings that showed it prevented an average of 70% of infections. Given the very high bar set by the two mRNA vaccines, it might be natural to feel a little disappointed at the 70% efficacy level, but it is important to note that a smaller cohort of the trial produced results showing 90% efficacy if the vaccine was administered as a half dose, followed by a full dose a month later. AstraZeneca also indicated that the two-dose regime was successful in preventing asymptomatic infections, although this needs to be validated with more results.

AstraZeneca is now looking to adjust its phase three trials that are still under way to incorporate these different dosing regimes, and hopefully prove a higher efficacy rate.

If its efficacy can be improved through the dosage techniques, then it can be a very positive addition to the two mRNA vaccines. Unlike the Pfizer and Moderna jabs, which have to be stored in ultra-cold conditions, the AstraZeneca jab can be kept in a normal fridge and is far cheaper than the two other vaccinations. The trial data has been welcomed by medical experts, who remind us that many were expecting an efficacy rate of around 50%-60% for the first round of vaccinations. All have exceeded these expectations.

Brexit latest

Although there is supposed to be a deal done by this week, as with most EU deadlines, this seems to be a rolling one. Back in June, a deal had to be done by the summer, then it had to be done by mid-October to allow time for the treaty to be translated into all the bloc’s official languages and scrutinized by the European Parliament. Now Michel Barnier is understood to be briefing that it could even get done with an agreement being reached in December. The anticipated date for a European Parliament rubber stamping vote is 16th December but nobody will be surprised if it drifts to just before New Year.

If a deal is not reached by the 1st January then the UK and EU will trade on WTO terms. That would mean tariffs, quotas and an effective border with the EU. The UK has granted an exemption to incoming goods during the first half of 2021 so incoming goods should suffer less disruption, but the EU has not reciprocated.

The two sides are still trying to bridge their differences over fishing, the level playing field for businesses and the governance of a potential trade agreement. Because of its size, the EU has the leverage.  It wouldn’t be surprising to see Boris offer up a last-minute concession, with the EU granting a smaller concession that allows him to spin it up into a win.

This week’s article from Brewin Dolphin focuses on the economic data that is starting to show a slowdown in business activity across the UK and eurozone, with updates on the market reaction to more positive vaccine news and the latest news on Brexit.

Please continue to check back for our regular blog posts and updates.

Charlotte Ennis


Team No Comments

The sentiment that matters

Please see below article received from Legal & General yesterday afternoon, which provides a market insight from the Head of their Asset Allocation team.

The mood swings, finally

Over the past week, after the election and vaccine news, investors’ animal spirits seem to have emerged at last. The AAII Bull/Bear spread, one of the indicators we rate most highly, jumped to its most bullish reading in nearly three years and one of the highest since the financial crisis. Recent fund-manager surveys from BAML, Strategas and ISI showed a similar surge in investor optimism.

To cap things off, the first sell-side outlooks for 2021 have also been more optimistic than both the historical average and last year’s ‘mid-single-digit upside’ consensus. The average S&P 500 target for end-2021 from Goldman Sachs, Morgan Stanley and Credit Suisse suggests 15% upside from here.

But despite the notable spike in investor bullishness, our own indicators are not sending contrarian sell signals yet. Our interpretation is that sentiment has simply become a headwind, rather than so excessively bullish that it starts to dominate our thinking about equity risk. Even at the latest reading of 31% net bulls in the AAII survey, for example, the average return over the following 12 months has been +6.3%, not far below the average return in any 12-month window. Historically, only readings above 40% net bulls have been significant sell signals.

Holding onto the barbell

We have been running a barbell strategy within equities since the spring. On the one side, our highest-conviction long is one of the most loved parts of the market, the secular growth story in tech. On the other side, we also like some of the least loved deep value and recovery plays in the form of telecoms, travel and leisure, and cyclicals.

European telecoms easily meet the deep value criteria with attractive relative valuations compared with history and regularly score as one of the least popular parts of the equity market. But a deep value case only has merit if there is a potential catalyst on the horizon. We see this in the likelihood of the sector benefitting somewhat from greater regulatory leniency and possibly some modest pricing-power gains in a post-pandemic environment. From a multi-asset perspective, telecoms also offer us some diversification with low correlation to broader equities and a low beta in equity drawdowns.

‘Cyclicals versus defensives’ is an obvious play on a strengthening economic cycle. Having recovered a lot of the pandemic losses since the spring, we see no overshoot against the improving macro data yet. With sentiment for cyclical sectors also remaining less optimistic than for defensive sectors, we expect this trade to have more room to run in the remainder of the economic rebound.

Value stocks and the travel and leisure sector both score well on sentiment (the consensus on them is bearish) and should both benefit particularly from the next phase of the economic re-opening dynamics. With the vaccine announcements behind us, we still expect generally positive macro news flow with a restart of travel activities and pent-up demand.

Calmer waters for a while

The New Political Paradigm (NPP) has been one of our medium-term themes as a framework for thinking about the market impact of gradually growing populist pressures.

As with so many things, the pandemic has accelerated the underlying trends of the NPP. The jump in food inflation does not affect everyone the same way. Job losses have been most severe among the lowest-earning groups, for multiple reasons. School closures have widened the education gap between students from different economic backgrounds. The Edelman Trust Barometer at the start of the year showed a significant gap in optimism about the future in different parts of developed markets’ populations before the pandemic hit. That gap is likely to be wider now.

The US election, however, should help keep some of the most market-moving elements of the NPP policy mix off the agenda for the time being. A Biden presidency should provide a calmer style in the US approach to China and trade policy in general, even if there is little change in substance. And with a divided congress, an aggressive change in fiscal policy (e.g. to modern monetary theory, universal basic income, or Medicare for All) has become all but impossible.

So overall, the NPP will likely be quiet for a while, but our expectation is that the underlying trends that gave rise to populism stay in place and become market drivers again in the years ahead. In the meantime, our mantra remains ‘don’t predict, prepare’.

We will continue to publish up to date content sourced from a wide variety of investment experts. Please check in again with us soon.

Stay safe.



Team No Comments

Monday Market Update

Please see below weekly news update received from Blackfinch Group this morning. The commentary provides a summary of global events and their effects on the markets.


  • Prime Minister Boris Johnson was forced to self-isolate after coming in to contact with a Tory MP who later developed COVID-19 symptoms
  • UK inflation rose more than expected to 0.7%, driven by higher prices in clothing and furniture, and partially offset by lower prices in recreation, culture and transport
  • The Government announced its intention to ban the sale of new cars and vans powered only by petrol or diesel by 2030. It will invest £2.8bn to help build out of UK countries’ charging point infrastructure and the development of long-lasting batteries.
  • A Confederation of British Industry (CBI) manufacturing survey showed that manufacturing orders fell at a faster pace in November than in October. The total orders balance fell to -40 from -34. The CBI calculated the figure by subtracting the percentage of respondents reporting a fall in orders from those reporting a rise.
  • The Office for National Statistics (ONS) reported that 14% of UK businesses said they had low or no confidence that their business would survive the next three months
  • The ONS also reported that UK retail sales volumes increased in October by 1.2% from September’s number, the sixth consecutive month of growth for the sector


  • Retail sales data for October came in slightly lower than expected at 0.3% growth, the slowest pace of expansion since April
  • Initial jobless claims rose to 742,000 last week, above economist expectations of 707,000
  • Treasury Secretary Steve Mnuchin and Federal Reserve Chairman Jerome Powell have so far failed to agree on extending the SME emergency loans package beyond the end of 2020


  • More than 15 countries in the region signed the world’s largest trade alliance, the Regional Comprehensive Economic Partnership. Having supposedly taken eight years to finalise, it marks the first single trade agreement involving China, Japan and South Korea. The intention is to gradually reduce tariffs across many areas.
  • Japan’s economy showed growth of 5% in the third quarter of the year, bouncing back stronger than expected


  • Moderna Inc announced that its COVID-19 vaccine was effective at immunising against coronavirus in 94.5% of cases. The results compare favourably to Pfizer’s results. As an added benefit Moderna’s vaccine won’t require the same heavy-duty freezing in transit.
  • The UK has signed a deal worth US$125mn to secure 5mn doses of Moderna’s vaccine, due for delivery in spring 2021. The deal will allow 2.5mn people to be vaccinated, with each vaccine requiring two doses.
  • The Oxford University and Astrazeneca vaccine also shows encouraging immune responses in the older population. However these results stem from a phase II clinical trial, whereas both Moderna and Pfizer have already taken part in phase III trials.

We will continue to publish relevant content and market updates as we enter the final month of an eventful year.  Please check in again with us soon.

Stay safe.



Team No Comments

Weekly Market Performance Update

Please see this weeks ‘Weekly Market Performance Update’ from Invesco:

Momentum on the vaccine front continued last week with a stream of positive news flow from the three companies (Pfizer, Moderna and Astra) making up the first wave of the DM vaccination development programme. This is clearly supportive of an improving medium-term growth outlook. However, the near-term backdrop looks increasingly downbeat. With negative Q4 growth already forecast for the EZ and UK, the risks to the downside in the US are also increasing, as regional lockdown restrictions rise and close to 10 million US workers are expected to lose their unemployment benefits at the start of next year. With the two largest DM economies struggling, the risk of contagion into the rest of the global economy, where virus news flow remains mixed (Japan and Korea, for example, are seeing a third wave of new cases), has undoubtedly increased. And there continues to be an important risk imbalance here. The near-term headwinds are far more concrete and fast-approaching, while the medium-term supports are still conjectural and vulnerable to being watered down as the year progresses. This two-way pull between near-term risks and medium-term opportunity continues to dominate financial market sentiment, even while political uncertainty continues to fester in the background on a number of fronts (US election, Brexit, EU budget impasse).

Vaccine just about held sway over virus in equity markets last week with the rotation trends of the previous week carrying through, albeit with far less momentum. Global equities hit a new high during the week (MSCI ACWI 0.4%), led by EM. Within DM, more cyclically exposed markets, such as Europe and Japan, led performance, with the US again lagging and ending down on the week. Small Caps outperformed and hit a new high, but still remain behind large caps YTD. Divergence in sector and factor performance continued. Energy and Financials retained their place at the top of the leader board, the former helped by further strengthening in the oil price. Defensives were the main laggards, with all four “defensive” sectors (Staples, HealthCare, Comms Services and Utilities) down for the week. The continuing rotation underpinned Value’s further outperformance relative to Growth. The UK (All Share +0.8%) benefitted from its Energy and Financials exposure, but that was partially offset by high exposure to defensive sectors, such as Staples and HealthCare. Small Caps continue to lead the market higher and they are now back in positive territory for the year, having been down 39% at one point in March.

Fixed Interest returns were positive across the asset class. Government bonds pushed lower with the 10yr Italian BTP hitting another record low of 0.6%. Spreads continue to narrow versus Bunds. IG edged ahead of HY in credit markets, with strength led by the US in the former and Europe in the latter. Yields hit record lows in both (1.51% and 5.31% respectively). Spreads narrowed marginally too.

The US$ resumed its weakness, falling against both DM and EM currencies. Combined with positive vaccine and supply news, this underpinned commodity markets, with both Oil and Copper rising, the latter to a new YTD high. Copper is now on course for an eighth straight monthly gain, the longest winning run in nearly a decade. A more positive economic backdrop is not necessarily helpful for Gold, which fell for the second week as ETF holders continued to reduce positions.

  • According to the latest BofA Securities monthly Global Fund Manager Survey, the UK is by far and away the least loved major equity market, with a net 33% of respondents saying they are underweight. This dislike is hardly new. Only in a small period in 2013 since the GFC have investors been overweight. This has been a good call. While local currency TR have been decent for the MSCI UK over this period (120%), they have been dwarfed by returns from other DMs. MSCI World ex UK is up 329%. Even if you strip out the very strong US market, it has lagged. MSCI World ex US is up 165%. And with £ having weakened over this period, £ denominated relative returns have been even worse. Brexit risk, an unattractive sector mix (no tech), earnings underperformance and, more recently, the poor handling of the pandemic have all made it easy for investors to take their money elsewhere.
  • So where does this leave UK relative valuations? The chart shows the long-term premium/discount for the MSCI UK (it has a much longer valuation history than the FTSE indices) relative to the MSCI World ex UK based on a composite average of Trailing PE, DY and PBV. Interestingly it has never traded at a premium. But the size of the current discount is material. At 46% it has only ever been surpassed in late 1974 and earlier this year. As you can see there has been a substantial de-rating in recent years from a 12% discount at the end of 2016, a function of the de-rating of the UK and a re-rating of the World ex UK during that period. The re-rating of tech and tech-related stocks, where the UK has little exposure, has largely driven the latter, while a de-rating of overweight sectors, such as Consumer Staples (Tobacco in particular), Financials and commodities, has been behind the former.

  • Has a large discount historically led to subsequent relative outperformance from the UK? Over the long term the relationship between the starting relative valuation and subsequent relative performance over both 5- and 10-year periods has been weak, with an R Squared of just 26% and 4% respectively. However, if you look at periods when the discount has been over 35% the UK has historically always outperformed over both time periods. Of course history is not necessarily a good guide to future returns and valuations on their own are rarely enough to drive a sustained period of outperformance. But it is a good starting point to be revisiting the UK market even if the fundamental backdrop for many of its leading companies remains a challenging one. And of course its relative performance fate may be out of its hands if tech (and tech-related stocks), where it has limited exposure (MSCI UK IT 1.4%, MSCI World ex UK IT 22.5%), were to continue to dominate the performance rankings.

Key economic data in the week ahead

  • It’s a relatively quiet week on the data front, with Preliminary PMIs the main area of interest, providing timely insight into the varying impact of virus containment measures on a number of major DM economies. With Brexit negotiations on tenterhooks (and now in a virtual format just to add complications) and the deadline for concluding them fast approaching, every smoke signal from the two negotiating teams will be even more closely watched. Financials markets expect a deal, even if it is likely to be of the “skinny” variety.

  • In a Thanksgiving shortened week in the US on Monday we have Preliminary PMI data, with both the Manufacturing and Services components expected to decline around a point to 52.5 and 55.8 respectively, still close to their post-recession highs. Declining confidence will also likely be reflected in a decline in the Conference Board Consumer Confidence Index on Tuesday to 98. This measure has yet to show any meaningful recovery off its Q2 lows. Initial Jobless Claims on Wednesday are forecast at 733k, up from last week’s 742k, as the US see a significant rise in Coronavirus cases. And on the same day we have the Fed’s preferred inflation measure, the Core PCE Deflator, which is expected to be unchanged month-on-month and down slightly to 1.4%yoy.

  • A very quiet week in the UK, with Monday’s PMI data the only announcement of note. Unsurprisingly, given the ongoing virus containment measures, a sharp decline in sentiment is expected, with Manufacturing falling from 53.7 to 50.5, the more lockdown sensitive Services sector falling from 51.4 to 43, leaving the Composite at 43, down from 52.1. On Wednesday there is the Chancellor’s Spending Review, which will just cover department budgets for the next Financial Year, having been downgraded from a multi-year review due to virus-related uncertainty around the public finances. But still plenty of interest for investors, with the OBR publishing its latest economic forecasts at the same time.

  • An equally quiet week in the EZ with just the PMIs to focus on. A similar profile to the UK expected here with Services (42.2 from 46.9) taking more of a hit than Manufacturing (53.1 from 54.8), leaving the Composite at 45.5 from October’s 50.

  • Nothing of note this week from either Japan or China.

This week starts off with more good news on the vaccine front. It will be interesting to see how this week pans out as Boris announces the governments plans for the end of the nationwide lockdown and the plans for the rest of the winter.

Please keep checking back for further market updates from a range of fund managers and investment houses.

Andrew Lloyd