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Legal & General Asset Allocation Team Key Beliefs Blog

Please see article below from Legal & General’s asset allocation team – received 14/09/2020.


Our Asset Allocation team’s key beliefs

Recurring patterns

The day after the UK voted to leave the EU – more than 1,500 days ago – we wrote in our Key Beliefs that “Brexit will now dominate markets for a while longer and be a market factor for years to come”. This week, we cover the latest developments in that ongoing saga and two other recurring issues for markets.

As with all Key Beliefs emails, this email represents solely the investment views of LGIM’s Asset Allocation team.

Rule Britannia, Britannia waives the rules

The result of last year’s election reduced the probability of a soft Brexit outcome, in our view. Since then there has been no real progress in discussions with the EU, so the chances of a comprehensive deal have dwindled further.

The new Internal Market Bill, and the news that the state-aid regime will not be ready until mid-2021, further lower the likelihood of securing a deal. This means that – barring a Parliamentary block, a policy U-turn, or a significant softening in approach from Brussels – we are probably now looking at a narrow range of outcomes between a hard exit and a slightly less hard exit. The difference in economic impact between the two is relatively small, and is likely to be swamped in the current environment by COVID-19 developments and fiscal and monetary policy.

This news is not particularly shocking, as negotiations with the EU have been going back and forth for a while, but investors have woken up to Brexit risks again in the past few weeks. With the market probability of a no-deal exit reaching approximately 80% in our estimates, sterling fell by around 4% against the euro and US dollar.

Looking forward, the narrowing Brexit outcomes should mean sterling’s range is more limited too, so we wouldn’t expect the wild swings in the currency of recent years. We believe the tail risks are also skewed to the upside from here: a no-deal scenario may see a touch more weakness, but a sniff of a deal could stoke a greater recovery.

Israel: the first domino?

The unsettling news for Israel is that COVID-19 dynamics in the country are deteriorating on all fronts, with the government announcing a second lockdown on Sunday. Many had supposed that the economic pain of shutdowns would deter politicians from re-imposing them, but Israel has demonstrated that we shouldn’t rely on that.

The question we need to ask ourselves is whether Israel is the first domino to fall and if Spain and France are the next ones to topple. There are some idiosyncratic differences between Israel and continental Europe, such as in party politics, demographics and behavioural tendencies, but equally it is possible to draw some parallels.

Spanish and French ICU capacity per person is greater than Israel’s but, at current rates of case-load expansion and growing ICU occupancy rates, Spain looks like it may become stretched by the end of September and France potentially a month or so later. That said, the head of the Spanish health-emergencies department believes Spain has already turned a corner for the better in its latest wave.

We believe further full-country lockdowns in Europe are not part of the consensus thinking in markets, so there is a downside risk, but more lockdowns could mean more stimulus too.

Fiscal fail

Hopes for any further fiscal stimulus in the US before the elections darkened last week as a deal proposed by the Republicans failed to pass a Senate vote. Negotiations have become increasingly difficult of late and a failure to pass a deal soon puts millions of Americans in jeopardy.

While there is a wide range of outcomes over the next few months, the risk of the economy stalling in the fourth quarter has risen. The consensus probability of a stimulus deal stood as high as 90% a month ago but, with those odds plummeting, economists will need to embark on a series of forecast downgrades if Congress fails to act. This was also a likely driver of weaker equity markets in the past week, hidden somewhat by the headline news of the technical squeeze in tech stocks.

Both sides still seem far apart on reaching agreement on another round of fiscal stimulus. Republicans do not wish to provide state and local government aid to ‘bail out’ Democrat states, while there is disagreement within the party on the type of stimulus and whether another round is even necessary. Democrats meanwhile voted against the proposals as they contained some ‘poison pills’, such as funds for the coal industry and a tax break for private school costs.

Additionally, the Federal Reserve is having problems with its Main Street Lending programme, designed to help small firms, with only $1 billion of loans out of a total capacity of $600 billion made so far. This means the central bank’s ability to offset an underwhelming fiscal stimulus could be reduced.

The drag on the economy is building, but not yet apparent in the data. The blockages in approving further stimulus should not be seen as a cliff, but an increasingly steep downhill ride the longer the standoff continues.

Another useful article from Legal & General covering the latest developments with regards to Brexit and other recurring issues for markets.

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

Charlotte Ennis

15/09/2020

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Blackfinch Group Monday Market Update

Issue 8, 14th September 2020

Please see below for the latest Blackfinch Group Monday Market Update:  

UK COMMENTARY

  • House prices rose 1.6% in August from July’s level according to the Halifax House Price Index. The annual increase in house price accelerated to 5.2% from July’s 3.8%, hitting its highest level since 2016.
  • Reports suggest that the UK is willing to walk away from Brexit negotiations in mid-October if a free trade agreement hasn’t been agreed upon.
  • A week of Brexit talks conclude with the EU telling Britain that it should urgently scrap a plan to break the divorce treaty, but Boris Johnson’s government have refused and continued with a draft law that could collapse four years of negotiations.
  • A rise in the number of COVID-19 cases in the UK brings fears of a second wave, forcing the government to reimpose some restrictions over social distancing. Daily cases have risen to close to 3,000, from c.1,000 at the end of August.
  • The British Retail Consortium’s figures report that year-on-year growth in retail sales rose 3.9% in August, but city centre shops continue to struggle.
  • UK gross domestic product (GDP) rose for the third month in a row in July, up 6.6%, although this is still 11.8% below January’s level.
  • A report from the National Institute of Economic and Social Research forecasts that the UK economy will emerge from recession at the end of the third quarter.

US COMMENTARY

  • Comments from Donald Trump that he may seek to ‘decouple the US economy from China’ suggest that the trade war between the two nations is far from over.
  • The US revokes visas for over 1,000 Chinese students on grounds of ‘national security’.
  • Initial jobless claims for the week are an exact repeat of the previous week’s number of 884,000. Continuing jobless claims rose to 13.39mln, above analyst expectations of 12.92mln.
  • Once again mutual agreement between the Democrats and the Republicans fails to be reached over details of a further COVID-19 support package.
  • US inflation rises by 0.4% in August, higher than forecast, but below the 0.6% rise seen in July.

EUROPE COMMENTARY

  • Insee, the national statistics institute of France, forecasts that the economy will contract by 9% this year, down from earlier predictions of an 11% drop.
  • EBC President Christine Lagarde announces that monetary policy remains unchanged, but that the bank has to carefully monitor the ‘negative pressure on prices’ that the Euro is exerting.

ASIA COMMENTARY

  • Revised GDP figures for Japan show that the economy shrunk by 28.1% in the second quarter of the year, worse than preliminary estimates released in mid-August.
  • China reports its largest jump in exports in 18 months, rising 9.5% in August compared to a year prior.

COVID-19 COMMENTARY

  • AstraZeneca confirmed that it had halted work on its COVID-19 vaccine, currently in development with Oxford University, after a ‘serious event’ during the trial process, reported to be a member of the clinical trial falling ill. However, trials officially restarted over the weekend.

These articles provide concise 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

14/09/2020

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What could make ‘value’ stocks finally outperform tech and ‘growth’ once more?

Please see the below article posted by AJ Bell last week:

Warren Buffett once noted that ‘A pack of lemmings looks like a bunch of rugged industrialists compared with Wall Street when it gets a concept in its teeth’ and those investors who piled in to tech stocks must now ask themselves why they were buying and what they should do after three days of sharp falls.

If they were just buying because they felt everyone else was and were simply looking to flip the paper on to someone else, they may feel pretty exposed and unsure of what to do. If they were buying out of conviction that companies such as Facebook, Alphabet, Amazon, Apple, Netflix and Microsoft – the FAAANM sextet which still represents a quarter of the S&P 500 index’s total valuation on its own – have such dominant market positions, shrewd management, strong finances and powerful future cash flow prospects that they deserve even higher valuations then they may be inclined to buy on the dips.

This temptation to run with the narratives that technology stocks are relatively immune to the pandemic and worth premium valuations because of the relative scarcity of consistent earnings growth right now is quite understandable.

But there remains the danger that neither narrative is particularly new and is therefore at least partly priced in to technology stocks’ valuations.

Just look at how ‘growth’ stocks in the USA have wiped the floor with ‘value’ stocks over the past decade and since 2017 in particular. This can be seen by analysing the performance of the Invesco QQQ Trust, an exchange-traded fund (ETF) designed to track and deliver the performance of the heavyweight NASDAQ 100 index (minus its running costs), relative to the iShares Russell 2000 Value ETF, which seeks to do the same for a basket of around 1,400 American small-cap ‘value’ stocks:

Source: Refinitiv data

Since January 2010, the iShares Russell 2000 Value ETF is up by 124% in capital terms, for a compound annual return of 7.8% – so it is hard to argue that ‘value’ has ‘failed’ as a strategy. What is clear is that ‘growth’ has simply done so much better, offering a 490% return, or a compound annual growth rate of 18%, as benchmarked by the Invesco QQQ Trust.

The performance gap between the two stands at a decade high.

But it may surprise less experienced investors to learn that the last decade’s stellar outperformance from ‘growth’ has only just begun to cancel out the prior decade’s grinding period of marked underperformance relative to ‘value’, taking 2000’s launch of the iShares Russell 2000 Value ETF as a starting point.

Source: Refinitiv data

That miserable ten-year showing followed the bursting of the tech, media and telecoms (TMT) bubble, so investors in tech and growth stocks now need to ask themselves whether they should fear a repeat.

Valuation alone is never a catalyst for out- or –underperformance, but it is the single biggest determinant of long-term investment returns (and a decade seems like a suitable definition of long-term). If tech earnings keep growing and surprising on the upside, if interest rates stay low, if inflation stays subdued and the FAAANM stocks use the combination of product innovation and acquisitions to maintain and even deepen their powerful competitive advantages, then many investors will be tempted to dismiss valuation as an irrelevance.

But the trouble could start if regulators begin to take a hand, earnings disappoint (as Big Tech does not prove to be immune to the pandemic after all or the law of large numbers means it simply becomes harder to generate strong percentage growth figures) or the wider economy starts to accelerate and inflation picks up.

None seem likely now but that it why ‘growth’ has done so well relative to ‘value’.

If a COVID-19 vaccine is quickly and successfully developed and distributed, then stocks which are seen as ‘immune’ from the pandemic may be less in demand and seen as less worthy of a premium valuation.

Equally, if growth and inflation pick up, then investors may not be so inclined to pay such premium multiples for ‘growth’ companies, if rapid earnings increases can be acquired much more cheaply along downtrodden value, cyclical plays like industrials, financials and consumer discretionary plays.

Moreover, an increase in inflation could force Government bond yields higher, even if central banks decline to raise interest rates and let inflation run hot, as per the US Federal Reserve’s new ‘average’ inflation target.

Prior periods of rising 10-year US Treasury yields have coincided with attempted rallies in ‘value’ names, so perhaps a return to economic growth and inflation could be the trigger for a sustained period of underperformance from ‘growth’ and ‘tech’ stocks relative to value ones.

Source: Refinitiv data

Please continue to check back for our regular blog updates.

Andrew Lloyd

14/09/2020

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Jupiter Asset Management – Active Minds Blog

Please see Active Minds article below from Jupiter Asset Management – received 10/09/2020

Active Minds – 10 September 2020

Ed Meier – Fund Manager, UK Alpha

Exciting opportunities in UK’s transition to clean energy

When it comes to the transition to clean energy, the UK is well placed with the North Sea, which provides ample capacity to store captured carbon, along with the country’s amazing wind energy potential, said Ed Meier, Fund Manager, UK Alpha and specialist in utility companies.

In fact, energy from wind assets in the UK has the potential to be comparable to Saudi Arabia’s energy production from oil. Saudi Aramco produces around 12.5 million barrels of oil a day while the UK wind, if fully developed, could potentially generate the equivalent of 20 million barrels of oil a day, Ed said. It’s a phenomenal potential asset that would be exportable, and the UK government is very much supportive, he said.

In utilities there is a shift in market appetite related to the move to net zero emissions, Ed says. It’s now a legal responsibility for many governments around the world. In the EU, final energy consumption has recently been 20% electricity and 80% fossil fuels. To get to net zero, those numbers must reverse. This means extraordinary potential growth for an industry that has been shrinking. This provides an interesting opportunity, though with limited areas to invest in the UK, which has sold off much of its utility assets, he says.

There is a one publicly-listed utility UK company that is producing 12% of the country’s renewable energy, and the market is underpricing the stock, in Ed’s view. The company is reducing its cost base as it aims to produce clean electricity without subsidy post 2027. In addition, the company is developing a technology called biomass energy, carbon capture and storage (BECCS). It’s a global pioneer in this area and potentially could be a negative carbon producer (i.e. removing carbon from the air) – a vital step in helping companies get to net zero. Thus, negative emission technology could provide a significant level of value for the company, he says.

We’re all over the opportunities from the energy transition in the UK and believe it’s quite exciting, Ed says.

Matthew Morgan – Product Specialist, Multi-Asset

Fed’s fatal attraction to loose policy

The significance of what Jerome Powell and the Federal Reserve are trying to do should not be underestimated, said Matthew Morgan, Product Specialist, Multi-Asset. The recent speech from Powell could mark a critical break from three decades of central bank behaviour. It doesn’t necessarily follow that we’re going to see inflation rise imminently. What matters for markets is less the specific outcome a few years hence, more the balance of probabilities now. What the Fed plans to do shifts that balance from deflation towards inflation.

Following the ‘stagflation’ of the 1970s, the US Congress gave the Fed three main objectives in the Federal Reserve Reform Act of 1977: maximum employment, stable prices and moderate long-term interest rates, in that order. Since then, the principal target of central banks has arguably been to control inflation.

It’s the first point (maximum employment) that falls under the spotlight now. The Fed’s recent announcement of Flexible Average Inflation Targeting (FAIT) acknowledged that the Fed will do whatever it takes to deliver full employment, even if it means inflation being above the 2% target for a period of time.

Powell’s speech makes it clear that the lessons learned from the past few years are that the economy can sustain a higher employment level than previously thought without risking inflation (effectively admitting that 2018’s rate hikes were a mistake), and that the benefits of higher employment were beginning to be shared more widely across society. In addition, higher inflation is the easiest way to bring debt levels down.

This is a significant change to the Fed’s interpretation of its mandate. While there are many that will look – with good reason – to the significant deflationary pressures out there, for the multi-asset team the key takeaway is that this announcement frees the Fed to keep its foot on the gas for much longer than it could previously.

Joe Lunn – Fund Manager, Gold & Silver

Hi Ho, Silver!

The current bull market in gold and silver is best explained in macroeconomic terms, says Joe Lunn, Fund Manager in the Gold & Silver team. Investors’ disenchantment with the US dollar, due to the US Federal Reserve’s determination to continue to print money, has led them to reassess the merits of monetary metals. Yields on government bonds have become so low that they are unlikely to outpace inflation which means that some government bondholders face losses in real terms. Gold and silver, by contrast, are stores of real value.

During bull markets for monetary metals, silver can often rise faster than gold, says Joe. During recent months, the gold/silver ratio (the gold price per ounce divided by the silver price per ounce) has contracted. Silver has risen more quickly than gold: their ratio has fallen from 124 on 18 March, to 72 on 8 September. Joe expects it go lower still.

Joe believes silver bulls should play the contraction of the gold/silver ratio by investing in shares of mining companies. This allows investors to take advantage of the operational gearing in businesses where costs are largely fixed. A rise in the gold and silver price of about 20% could translate into a rise in a mining company’s EBITDA (net earnings with interest, tax, depreciation and amortisation added back) of more than 30%, he says. He also likes miners that are unlikely to issue new shares (some North American silver miners are prone to such dilutive behaviour).

A government’s attitude to COVID-19 is also important, Joe says. Mexico, for example, has granted key industry status to mining: mines would stay open even if much of the economy goes into lockdown. Peru, by contrast, is allowing companies to make up their own minds: miners might shut production if the second wave of infections continues to worsen. 

While Joe has strong views on the relative merits of individual mining companies, many of whose mines he has visited, he believes they should be held within a diversified portfolio as individual companies are not without risk.

Liz Gifford – Fund Manager, Global Emerging Markets

It’s not all about technology in emerging markets

Liz Gifford, Fund Manager, Global Emerging Markets, spoke about the opportunities available to emerging market equity investors outside of the large cap tech names that have been in such favour, particularly since the start of the pandemic. Liz and the team have a preference for companies with three key features: a high return on capital, a competitive advantage (protective moat) to protect those returns and the ability to grow while maintaining the high returns.

There are several examples of large, high-profile technology companies in emerging markets that meet those criteria, yet last week’s sharp correction in the US tech names underlined the need for investors to be well diversified across sectors. Liz touched on some examples of areas where the team can find attractive opportunities outside of large cap technology stocks.

One example she highlighted was a car rental company in Brazil with a 35% market share. It is the largest player in its local market, has scale and buys twice as many cars as its nearest competitor. This gives the company significant bargaining power that can benefit customers through lower pricing, which further reinforces the company’s dominant position in the marketplace. Covid-19 has presented challenges for the company, of course, but in the end Liz believes it will strengthen this company’s competitive position as smaller players go under.

On a similar theme, Liz also highlighted Thailand’s leading decorative paints company. The company has arguably already achieved its maximum market share, but Liz and the team see the local market has being underpenetrated both in Thailand itself and in neighbouring countries. Here the competitive advantage is in the paint mixing machine at the point of sale, these are expensive to replace and retail outlets don’t typically have capacity for more than one – keeping competitors at bay. The company’s high return on capital and continued growth potential make it attractive to the team. These are just two examples of the kind of stock opportunities that are available outside of the large cap tech names that tend to dominate passive indices.

Articles like this are useful for getting an insight to the market from market experts.

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

Charlotte Ennis

11/09/2020

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Royal London Economic Viewpoint & Market View Update

Please see below an update received late yesterday afternoon from Royal London which details their current Market View and Economic Viewpoint:

Market view

“The remarkable run of the global equity market continued in August, reaching all-time highs led by the US. The rally has been supported by signs of recovery in underlying economic data and progress in the development of vaccines and treatments for Covid-19. While there was a significant market sell-off at the end of last week, led by technology stocks, US equity indices remain markedly higher than they were at the start of August.

Equity markets were relatively calm for most of August. The VIX index, a measure of expected volatility based on S&P 500 index options, spent most of August hovering around 22 (a six-month low). However, the market correction at the end of last week caused the index to surge to around 37.5 although this has declined towards 30 as I write. For many, US equity markets near all-time highs will seem bizarre, but as I noted in March, markets are forward-looking, and just as they fell sharply as the uncertainty of Covid-19 emerged, so in response to the record monetary and fiscal stimulus they are taking the view that ultimately, there will be a substantial economic rebound. What is interesting is the acceleration of certain trends – notably technology-related areas such as digitalisation. While stocks will see the normal ebb and flow in sentiment, there can be periods where markets over-extrapolate trends, and this can manifest itself in higher price multiples that investors are prepared to pay to own assets with exposure to that trend. While there has been some evidence of these trends starting to emerge in part of the technology complex, underlying earnings growth and cashflow generation have been strong this year, but when this comes with multiple expansion, we need to approach this appropriate caution.

The risk-on sentiment seen in equity markets was replicated in government bond markets, with yields surging globally. Within this, European government bond markets strongly outperformed, while the UK gilt market lagged on anticipation of a massive supply of long-dated gilts over the next few months. One of the key strategies for our government bond funds this year, given the many uncertainties for investors, has been to embrace tactical, rather than strategic, trading around supply events. The next few months should provide ample opportunities for that approach.

Within investment grade credit, spreads (the yield difference between corporate bonds and government bonds) are now only about 0.2% wider on the year, with the average spread 1.25% at the end of August, though there is a lot of sectoral variation within this. Financial bonds (banks and insurance) have been notably strong in recent weeks, which have benefitted our credit portfolios given that they are typically overweight in this area and in particular subordinated financials. The high yield credit market has performed particularly well since the market crash in March, with August being no exception. It looks likely to have been one of the most significant months of issuance ever, with companies keen to take advantage of the high level of demand in the market. Periods of significant corporate issuance are often supported by increased risk appetite for the asset class but can see investors being prepared to accept reduced covenant protections. As fundamental investors we need to be especially diligent when these trends start to emerge and position our high yield funds accordingly.

As we’ve said before, the coronavirus pandemic has changed things forever. Our autumn investment series webinars at the end of September have been put together to look at how these changes will play out in various asset classes. We’re also providing an update on how RLAM functions, not because this is intrinsically interesting, but to give you confidence in how we are operating and have adjusted to this new world. In addition, I’m delighted that we will have Andrew Neil doing a session for us. Andrew has a unique insight into the political process here in the UK. Ten years ago there was an argument that politics mattered less given the consensus that existed at the time. In an age of Brexit and Coronavirus, that is certainly not the case, and I’ll be listening to what Andrew has to say with great interest.”

RLAM Economic Viewpoint

The months of economic recovery post-lockdown, into the early part of the summer were strong, bolstered by the release of pent-up demand. The current phase of the recovery looks more challenging and the pace appears to be slowing in many places. In recent weeks, data has been more mixed. US and euro area business survey data for August indicated growth, but with some survey indicators rising and some falling – sending mixed signals on whether growth is slowing or speeding up. Higher frequency mobility indicators have flattened in several countries over July and August. ‘Hard’ data for July, such as retail sales and manufacturing production, suggest that the pace of growth slowed in the US and euro area, although the latter is not yet available in the euro area. China’s business surveys suggest that the recovery continues, but the pace of improvement in ‘hard’ data series like retail sales has slowed.

Several factors seem likely to help hold back the pace of recovery, especially until an effective vaccine is widely available:

  1. Mandated social distancing;
  2. Damage done/scarring – relating to permanent job losses, permanent business closures and household/business balance sheet damage; 
  3. Fear – of the virus itself, but also of shutdown risks and related risks to job security and around the outlook for the return on any planned investment.

The progress of the virus will affect these (new case numbers have fallen in the US, but are rising in Europe). Governments have a direct role to play in 1); have pumped in a huge amount of economic policy support to limit 2); and through ongoing public health measures and economic stimulus, can help dampen 3).

Over the last few weeks, the role of governments is one area where risks are building, particularly in the US. US monetary policy remains accommodative and the FOMC’s recent adoption of an average inflation targeting framework further underscores that they will be in no hurry to take back that stimulus. Fiscal policy, however, has disappointed. There was some expectation that US politicians would agree a fiscal package earlier in the summer to offer at least some continuity after the provisions of the CARES Act rolled off – in in particular, the boost to unemployment benefits. With election campaigning now in full swing, it is less clear that both sides will be able to come together and pass a package. Another government funding deadline approaches at the end of this month, bringing the prospect of shutdown risk too.

Here in the UK, there are reasons to worry as well. Some temporary government interventions have been a big boost/support to activity, but it is not clear how well the economy will do once they are unwound. Eat Out to Help Out has been a success in getting people eating out, although it is too early to judge whether the effects will last. The heavily used furlough scheme is discontinued entirely in October. So far, the UK unemployment rate has stayed at very low levels as take up of the scheme has been high. That will have helped to shield many households from the effects of the crisis. As that support is unwound, more job cuts are likely as firms reassess their finances. It was notable that in the – generally strong – August PMI business survey, that the employment component remained weak. In their press release, compilers IHS/Markit comment that “lower payroll numbers were primarily attributed to redundancy programmes in response to depleted volumes of work and the need to reduce overheads before the government’s job retention scheme winds down”.

As for inflation, the data has yet to give a clear steer on whether the worst of the deflationary effects of the crisis are behind us. Across many developed economies, July inflation data surprised on the upside. However, euro area inflation went on to surprise on the downside in August, recording a first negative year-on-year print since March 2016 and the next print of UK inflation will incorporate the effects of the VAT cut and Eat Out to Help Out. As for how deflationary/inflationary the crisis will ultimately prove to be, the odds on an inflationary outcome have arguably risen after the FOMC’s change in monetary policy framework. However, “likely” aiming for “inflation moderately above 2% for some time” after inflation has been persistently below 2% – as has been in the US – is not a green light for a high inflation environment. Several other factors, including a boost for online retailing from the pandemic, are likely to work in the opposite direction on inflation.

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

10/09/2020

Team No Comments

Aviva – Remote Control – Take control of your wellbeing in remote working environments

Please see article below from Aviva which is a guide to taking control of your wellbeing in remote working environments – received 02/09/2020.

Remote Control – Take control of your wellbeing in remote working environments

This short guide gives practical advice, helpful guidance and support to anyone working remotely during the coronavirus pandemic.

‘Social interaction increases the spread of the coronavirus pandemic as it passes from person to person, by touch and through droplets in the air. Social distancing can dramatically slow the spread. That’s why working remotely for many businesses has become essential, in locations that are very different from normal working environments.

Staying in control, maintaining your mental and physical wellbeing can be a high challenge in these extraordinary circumstances. That’s why we’ve published this easy-to-read guide of practical tips and guidance. Life is difficult enough right now, so we’ve kept things as light and breezy as they can be. Stay safe, stay healthy and stay connected. We’ll get through this together’

Dr Doug Wright, Medical Director, Aviva UK Health and Protection

Mental Wellbeing – Some Top Tips

Stay connected and keep talking

The key message is: don’t suffer in silence. The more open everyone is about their mental health – whether they’re doing ok or struggling a bit – the better things will become. One of the most important things you can do at times like this is to talk to people and share how you are feeling. Connect with your colleagues or your manager (and if you’re a manager, don’t forget this applies to you too) and explain how changes, work allocation or the situation is making you feel.

Use wellbeing apps

There are many apps you can use to support your mental wellbeing, to help with mindfulness, meditation and overall mental wellbeing.

It’s essential to select the best app for the task, and that’s where NHS Digital steps in. Although health apps are not supplied by the NHS, it’s widely accepted that the NHS Digital’s Apps Library is the ‘go to’ place for reliable, objective information. It’s here you’ll find trusted mental health and wellbeing apps that have been assessed using rigorous standards. And when an app is improved or modified, it is reassessed.

Change where you work in your home

Don’t work with your laptop facing a blank wall! Your connection with the outside world begins with what you can see outside, just above your screen. It might be a back garden, it could be rooftops, it might be a not-so-busy street, but it’s your physical window on the world. So where do you work in your home? Each home is different, but what you should look for is known as a ‘command position’ that puts you in control. It’s a concept from Feng Shui, the ancient philosophy of living in harmony with your immediate environment. Basically, choose a position in the room that you work in that is furthest from the door and that also enables you to look out of a window. You’ll feel better for it. And in a time of crisis, empowerment starts here. Try it!

Control your intake of negative news

Your home is your castle. And as you work from home, you might feel as if its walls are under siege conditions. With social media and new technology enabling a 24/7 news feed, we’re experiencing constant updates on coronavirus. While some information is useful, too much immersion to this type of news can fuel alarm and tension. As we piece together the progress of COVID-19, the result of being plugged-in to a relentless news cycle can generate negativity, fear and anxiety. In short, if you feel bad about being isolated, the news will make you feel worse.

There’s a simple answer to this: prioritise your mental health and switch off. A bombardment of negative news needs a cut-off point, and you can limit your input just as you’d do for children and screen time. Rolling news isn’t necessarily the most accurate. Take a deep breath and catch up with it tomorrow when the facts are known.

Physical Wellbeing – Some Top Tips

Keep in shape as best you can

Whether you are physically distancing yourself from others, and/or in self-quarantine, you still need to maintain your physical wellbeing. You might not be able to go to your usual classes, gym or exercise activity, but don’t stop all kinds of exercise.

Do something different to get the heart rate going – it could be a skipping rope session, football kick-about or star jumps in the garden or back yard, or inside if you can’t go outside. Go for a walk or a run around the block (not getting too close to anyone else). Fresh air is still very important.

Why not use YouTube or those old exercise DVDs to do a workout? Remember the Wii Fit or Dance Mat? Is it gathering dust in the back of a wardrobe somewhere?

How the pandemic might affect your sleep and how to stay in control.

Have you been having broken or disrupted sleep? Vivid dreams or nightmares?

It’s understandable and you’re not alone.

With such unexpected, unprecedented changes, how you sleep is so incredibly important. It plays a critical role in your physical health and an effective functioning immune system. Quality sleep is also a huge contributor in emotional responses, physical and mental health, helping deter the onset of stress, depression, or anxiety. Whether you’ve had sleeping problems before COVID-19 or if they’ve only come on recently, there are steps that you can take to try to improve your sleep.

Team working at a distance

You can’t support the wellbeing of others if you don’t look after yourself To stay well, you need to consider your physical, mental, financial and social wellbeing – and there’s lots of support and advice available for everyone. Take a proper lunch break, get outside if you can (keeping your distance from others), practice mindfulness and make digital connections via social media and video chats. By doing these things to support your own wellbeing, and telling your colleagues about them, it can support everyone’s wellbeing.

Don’t let the fact that you and your team might be working remotely mean that it creates an ‘always on’ culture. Create working times to suit you and your colleagues, and stick to them. Perhaps create a routine that symbolises the end of your working day. Rest and recharging (physically and mentally) is really important to your wellbeing. If you are a manager and supporting your team, then you need to look after yourself too, giving yourself time to deal with the issues you yourself are facing.

How to lead virtual meetings

Establish virtual meeting principles with your team

• Does every meeting need an agenda?
• How often do we meet and when?
• How do we hear the voices of everyone?

Create a safe environment

By creating a few ground rules on how we interact with one another, such as not interrupting each other, accepting all ideas equally and not being judged, ‘out of the box’ suggestions are encouraged and listened to. Be a brilliant virtual meeting host

• Try and get familiar with the technology you are using.
• Bring energy and purpose to your gatherings, be ready to be flexible and adapt to the needs of the participants.
• Try and be the first in the room so you can meet and greet your participants.
• Consider adjusting start times to allow for things like comfort breaks and give the host space to be prepared and ready to go.

Keep the participants engaged

• Avoid the temptation to dive straight into business, a few moments of friendly chat before a meeting lightens the mood and strengthens the bonds of the group.
• Embrace check in’s and check out’s. Encourage everyone to contribute from the start.
• Listen out for the silence. Some characters are naturally more vocal and confident in these conditions than others. Invite contributions so everyone gets a say.
• Consider catching up 1-1 with anyone who appears to be struggling to contribute and establish a way that works for them and allows them to maintain a sense of belonging.

Following on from the Aviva – Looking after your mental health and wellbeing blog we posted last week (04/09/2020), this is another useful guide from Aviva with regards to our wellbeing whilst working remotely from home.

Working remotely may affect everyone differently but it could be particularly difficult for those who live alone. The tips above should prove useful in maintaining your mental and physical wellbeing.

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

Charlotte Ennis

09/09/2020

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Brooks Macdonald – Weekly Market Commentary

Please see below an article by Brooks Macdonald which was received late yesterday afternoon and outlines their latest views on the markets:

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

08/09/2020

Team No Comments

Legal & General – Asset Allocation Team Key Beliefs Blog

Please see article below from Legal & General’s asset allocation team – received 07/09/2020

Techastrophe or Techantrum?

This week we focus on technology stocks, given the recent drama, but also stand back from the hurly-burly and reflect on how far expectations for a vaccine have come since COVID-19 hit in the spring. We also touch on the recent change in tack from the European Central Bank (ECB) where the drumbeats of verbal intervention have started, and inflation data have – once again – been dire.

As with all Key Beliefs emails, this email represents solely the investment views of LGIM’s Asset Allocation team.

Shaken, not stirred

In an impeccably timed blog published last Thursday, Lars asked whether now is the time to start taking profits on technology stocks. Investors across the world obviously took note and decided that the short-term answer was an overwhelming ‘yes’, with the Nasdaq down around 10% in just two days. In recent months, we’ve seen record after record broken by technology stocks.

Nigel Masding on the Active Equity team produced some eye-popping statistics this week, looking at year-to-date returns for the MSCI World, which sum this up nicely. Until the end of August, the index of 1,718 stocks had generated a return of +5.7%. Just four stocks contributed enough on their own to push the index into positive territory and to deliver this return: Apple, Amazon, Microsoft* and Tesla*. An index composed of the other 1,714 stocks is still underwater (source: Bloomberg).

With that in mind, are we seeing the tech bubble pop or is this just a short technical correction? We favour the latter interpretation. There was no apparent news flow that was a convincing catalyst for the move and the overall pattern of performance within equities was not consistent with a risk-off environment or of particular virus concerns. Still, there were a few hints of pretty irrational behaviour in the immediate run-up to Thursday, with high-profile stock splits seemingly responsible for driving tech names higher last Monday and Tuesday.  

We have long-held two guiding principles for assessing when the time might be right to exit technology stocks: excessive valuations and excessive bullishness. In our opinion, neither signal has turned red yet. Outperformance has been driven by a step-change in earnings rather than by valuations. On sentiment, it is impossible to argue that tech is a particularly unpopular sector, but we don’t see signs of excessive bullishness either. For context, we’ve been tactically positive on technology stocks (relative to the broader market) since early 2018.

In the week in which a new trailer for the latest Bond film was released, our conviction in that trade is shaken, not stirred.

Vaccination vacillation

In the late 18th century, Edward Jenner pioneered the world’s first inoculation by intentionally infecting an eight year old boy with cowpox. Medical trials have evolved somewhat since then, but the word vaccine still derives from the Latin for cow. And it is hopes of a vaccine breakthrough that have continued to drive the bull market in equities and credit over recent months. This week saw the Centre for Disease Control (CDC) in the US issue advice to State governors to prepare for potential vaccine distribution as early as 1 November. The chart below, from Professor Philip Tetlock’s Good Judgement Project, shows the extraordinary change in expectations around the timeline to that vaccine. The chance of a vaccine being widely available by March next year is now seen as more likely than not, having been almost inconceivable only a few months ago.

Good Judgement Project: When will enough doses of FDA-approved COVID-19 vaccine(s) to inoculate 25 million people be distributed in the United States?

Source: LGIM, Good Judgement Project, 4 September 2020. There is no guarantee that any forecasts made will come to pass.

In the meantime, Jason Shoup of LGIM America raises the intriguing possibility of a breakthrough in testing technology. If cheap (<$5), rapid (<15 min), saliva-based (i.e. no nose swab), and self-administered coronavirus tests become widely available, it would allow a rapid normalisation in sectors where social distancing is difficult/impossible. The US government have called the development of a vaccine “Operation Warp Speed”. Not to be outdone, the UK government dubbed the development of rapid testing technology “Operation Moonshot”.

Financial markets will be willing to forgive signs of an economic stumble in the short term, provided that the medium-term outlook continues to look reassuring. With COVID-19 cases rising fairly rapidly across large parts of Europe again, these breakthroughs cannot come soon enough.

EUR-eka moment in FX markets

In the last few years, one of the most consistently poorly performing investment strategies has been following currency momentum. The kind of sustained multi-year currency trends that characterised the 1990s and 2000s have become a thing of the past as central banks deploy verbal (and the threat of actual) intervention to manage exchange rates within relatively narrow corridors. This change in landscape has become so extreme that anti-momentum currency trades have been started to become consistent winners. The post-COVID-19 currency markets have been dominated by a lurch lower in the US dollar that threatened to break that pattern: on a broad trade-weighted basis, the dollar index is down around 10% since the March highs with the Federal Reserve’s framework review providing the latest catalyst.

This week brought the first serious pushback against that trend from the ECB. Philip Lane, the central bank’s chief economist said the “euro-dollar rate does matter”. Sternly worded stuff, indeed! More revealing, a number of his colleagues on the Governing Council, under the veil of anonymity provided by an FT article, followed up with even stronger comments: the strengthening of the euro is a “growing concern” and “worrisome”. These kind of comments hark back to the days when Jean-Claude Trichet, former ECB president, used to bemoan “brutal” FX moves.
 
The market seems to have taken this as an indication that 1.20 is some kind of line-in-the-sand for the single currency. For that to be effective, the ECB will soon need to back up words with action. The ECB is obviously heavily constrained in its ability to cut interest rates further, but we anticipate an extension of the quantitative easing programme to be announced in the next few months. That won’t be a big surprise to the market, but should help to keep a lid on government funding costs in the periphery and tame the recent burst of euro strength, in our view.
 
The urgency of addressing the situation will have been underlined by some exceptionally weak European inflation data this week. European headline inflation dropped back below zero for the first time since 2016. On a core basis, HICP inflation dropped to the lowest level on record at just 0.4%. There are exceptional circumstances associated with the timing of summer sales, but these are the kind of numbers that will bring an inflation-targeting central banker out in a cold sweat. With the ECB looking dangerously like Old Mother Hubbard (with a bare policy cupboard) we think that staying short European inflation is a strategy likely to benefit from a consistent fundamental tailwind. *For illustrative purposes only. The above information does not constitute a recommendation to buy or sell any security.

A useful article from Legal & General’s Asset Allocation team with a focus on technology stocks, a vaccine for COVID-19 and the recent change in tack from the European Central Bank.

Please continue to check back for out latest updates and blog posts.

Charlotte Ennis

08/09/2020


Team No Comments

Invesco – Weekly Investment Update

Please see below an article published by Invesco today, which provides their insights to recent market performance:

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

07/09/2020