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Blackfinch Asset Management – Monthly Market Moves

Please see below for Blackfinch Asset Management’s latest Monthly Market Moves article, received by us yesterday 08/03/2021:

Market Performance

1st- 28th February 2021 (in GBP Total Return)

FTSE 100+ 0.65%
S&P 500 (USA)– 1.21%
FTSE Europe (Ex UK)– 0.94%
TOPIX (Japan)– 1.87%
MSCI Emerging Markets– 3.82%

Market Overview – February 2021

February was a tale of two halves for global bond and equity markets. What started out as a relatively positive month quickly reversed into a period of turbulent trading. Almost exactly one year to the day since the initial pandemic sell-off, inflation concerns caused bond yields to rise, causing a negative impact on equity markets, particularly those tilted towards growth stocks.

Inflation Fears Shake Markets

  • It has long been assumed that the economic recovery from the pandemic would cause some inflationary pressures. However, the fear that central banks, particularly in the US, may withdraw their substantial monetary policy support gripped investor attention.
  • President Biden’s $1.9trn stimulus package, which includes issuing further cheques to large swathes of the US population, moved closer to being agreed. This added further fuel to the inflation flames, evidenced already by the $600 cheques issued in January causing retail sales to come in way ahead of market expectations.
  • US Federal Reserve Chairman, Jerome Powell, did his best to reassure investors that the central bank will not consider raising interest rates, but his assurances did little to calm their nerves.
  • These fears caused the value of the US Dollar to appreciate. This in turn negatively impacts Emerging Markets, where countries hold significant portions of their debt in Dollars and therefore servicing this debt becomes more expensive.

Is the End in Sight for Lockdown?

  • More than 20 million people in the UK, almost one-third of the population, have received their first COVID-19 vaccine injection, with nearly 800,000 having received both doses.
  • Prime Minister Boris Johnson set out his ‘roadmap’ for an end to lockdown measures in England, starting with children returning to school on 8th March. While proposed dates are in place for a complete easing of lockdown, the public, and investors, should not get complacent given the prevailing uncertainty in the interim.
  • UK Gross Domestic Product came in ahead of expectations in December, reiterating the ongoing economic recovery.
  • Despite this, the UK economy contracted by a record 9.9% in 2020 but has so far managed to avoid a double-dip recession.

Little Change in Central Bank Policy

  • The Bank of England (BoE) left interest rates unchanged at 0.1% and kept its bond-buying programme at £895bn.
  • The BoE also commented on the possibility of negative interest rates, stating that most banks would need six-months to prepare for such a move. While this could be seen as foreshadowing a potential move towards negative rates in the future, it at least gives institutions some comfort that any move would not be in the near term.
  • The European Central Bank made no change to its monetary policy, keeping interest rates on hold as well as maintaining the €1.8trn Pandemic Emergency Purchase Programme (PEPP), confirming it will run until at least March 2022.
  • Chairman Jerome Powell announced that the US Federal Reserve will need to remain accommodative for “some time” yet. While its programme of substantial monthly government bond purchases looks likely to continue, Powell noted this could be eased once inflation and employment targets are reached

Summary

With markets having a difficult month, it is important to recognise just how far they have come in the last 12 months. As we pass the one-year anniversary since developed equity markets started to decline, as the potential impact of the pandemic became a reality, we must keep in mind that markets have rallied strongly since their trough in mid-March 2020. Therefore, periods of profit-taking are to be expected, particularly in those areas that have rallied the strongest.

While an end to lockdown measures feels within touching distance for some countries, including the UK, the emergence of new variants of COVID-19 remains a concern. As such, we need to temper any excitement of a ‘return to normal life’, as there is still a long way to go. Even so, right now in the UK the signs are promising that we may have our freedoms returned to us come the summer.

Please continue to utilise these blogs and expert insights to keep your own holistic view of the market up to date.

Keep safe and well

Paul Green DipFA

09/03/2021

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Blackfinch Group Monday Market Update

Please see below for the latest Blackfinch Group Monday Market Update received by us today 30/11/2020:

UK COMMENTARY

  • Prime Minister Boris Johnson announced an end to the second national lockdown, with the country moving to a three-tier system after 2nd December. Additional rules governing the Christmas period were also announced, with three households allowed to form a ‘bubble’ between 23rd and 27th December.
  • The Composite UK Purchasing Managers’ Index (PMI) fell to a six-month low of 47.4 in November, from 52.1 in October, indicating a contraction in business activity. The services sector PMI contracted from 51.4 to 45.8, while there was expansion in manufacturing from 53.7 to 55.2.
  • Rishi Sunak announced the Government’s latest spending review. He confirmed that £55bn of COVID-related spending is in place for the next fiscal year, in addition to the £280bn allocated for 2020.
  • The Office for Budget Responsibility released its forecasts, showing its central case. This is where vaccines are widely available from mid-2021, leading to the economy being approximately 3% smaller in 2024/25 than if the pandemic hadn’t happened.

US COMMENTARY

  • The General Services Administration announced that it would begin the formal transition process to the president-elect Joe Biden. This will allow Biden and his team access to both funding and government agency officials. It’s the first sign that a smooth transition of power may take place.
  • Initial jobless claims came in ahead of expectations at a five-week high of 778,000
  • The Federal Reserve meeting minutes from early November showed that policymakers will consider further stimulus via asset purchase mechanisms

ASIA COMMENTARY

  • China’s industrial profits rose for the sixth consecutive month, posting an increase of 28.2% year on year according to the country’s National Bureau of Statistics

COVID-19 COMMENTARY

  • Results from clinical trials of the COVID-19 vaccine in joint development by Astrazeneca and Oxford University showed 70% effectiveness across all dosing regimens tested. One regimen showed efficacy of 90%.

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

30/11/2020

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Do Active Managers Truly Deliver in Volatile Times?

Please see the below content from Blackfinch Asset Management:

The role of an active manager is to make investment decisions based on analytical research, forecasts, judgement and experience with the aim of outperforming a specific benchmark or achieving a target return. This is as opposed to passive management, which involves tracking a market index.

The optimal environment in which active fund managers should thrive is when there are heightened levels of stock market volatility. Large swings in market direction create attractive investment opportunities as well as compelling exit points for profit taking. Arguably, markets have rarely been more volatile than in 2020. As a result, we’ve been extremely vigilant in assessing and monitoring the actively managed funds to which we allocate within our portfolios.

Our Approach to Active and Passive Managers

We’re whole-of-market investment managers, meaning we have the luxury of being able to make investment decisions freely, without fear of compromise. We’re unbiased in our investment selection. This extends not only across underlying fund houses, geographic regions and asset classes, but also when it comes to selecting between active and passive mandates.

We blend active and passive strategies within our portfolios, recognising the benefits that both approaches bring. When selecting an actively managed fund, we expect to clearly see value being added over and above an equivalent passively managed fund.

It’s important to establish whether a fund is delivering outperformance versus its selected benchmark. We’re also just as concerned about how it’s performing against its comparable peer group. This helps us to ensure that our investment screening process enables us to identify active managers with the ability to deliver attractive risk-adjusted returns versus other similar mandates.

Active Equity Managers

Equities are the main driver of performance in most portfolios. Our most recent assessment showed that, out of all actively managed equity funds to which we allocate, 84.6% have outperformed their respective benchmarks this calendar year. Perhaps even more comforting is that when compared to their peer groups, an impressive 92.3% of our underlying funds have outperformed their peer groups.

North America

Notably, within the North American equity sector, one of our core active equity funds has delivered a year-to-date return of 84.5%. This is some 71% ahead of the base market and equivalent passive mandate.

Asia and Emerging Markets

China, emerging markets and Japan have also been areas where our active managers displayed strong returns over equivalent passive and sector comparators. Of course, past performance should not be used as a guide for future returns. These impressive returns do mask some periods of significant volatility. However, when used at the correct weight and managed appropriately, these funds can be a fantastic component in a portfolio.

UK

On the flip side, within our UK equity allocation the margin of outperformance from active managers was far less, particularly in the large cap space. While outperformance was achieved, the difference between active managers and their passive equivalents was around just 2-3% after fees. We feel this performance differential is down to the notable challenges that the UK market has faced this year above and beyond the pandemic. For this reason, we remain comfortable in maintaining our current underweight to the region.

Ongoing Assessment and Monitoring

As ever, we’re conscious that the investment backdrop can change at a moment’s notice and we remain vigilant in our allocation to active managers. This is reflected in how we stick to our established process and also highlights the importance of regularly screening and assessing both active and passive mandates. This discipline helps us to ensure we don’t become wedded to ‘star’ managers and continually focuses attention on selecting the correct strategy depending on the particular stage of the market cycle.

As you may have seen with some of our other blog content, we regularly share updates from Blackfinch Asset Management as we believe they are a very good investment management firm. They have a good solid ESG proposition built in to their investments and as you can see in this article, they have a very good approach to investments and are varied in their methods to help deliver the right returns depending on the clients circumstances.

As Blackfinch note in the article, they are conscious that the investment backdrop can change at a moment’s notice and remain vigilant in their allocation to active managers.

We share the same view, and one of the ways we remain vigilant is by staying up to date on markets by taking in a wide range of views from across markets to help us get a handle on what’s going on.

We are also vigilant with the investments that we recommend to our clients and review these on an ongoing basis to ensure that they are doing exactly what they say they will and looking after clients assets in the right way. This is part of our ongoing research and Due Diligence.

Please keep an eye out for further updates from both us and from a range of different fund managers and investments houses.

Andrew Lloyd

19/11/2020

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Blackfinch Group Monday Market Update – 19/10/2020

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

UK COMMENTARY

  • Boris Johnson unveiled a three-tier lockdown system to help control the spread of a second wave of infections
  • A lack of progress on a Brexit trade agreement saw Johnson suggest that the country should prepare for a ‘no-deal’ outcome
  • The three months to the end of August saw Britain’s unemployment rate rise to 4.5%, the Office for National Statistics (ONS) said, versus expectations of 4.3%
  • After a record low of 343,000 vacancies in April to June, there has been an estimated quarterly increase to 488,000 vacancies in July to September 2020. Vacancies, however, remain below pre-pandemic levels and are 332,000 less than a year ago.
  • The latest grocery market share figures from Kantar for the four weeks to October 4th show that sales growth rose by 10.6%, which is expected to be a result of the threat of another national lockdown. Shoppers spent an additional £261mln on alcohol as the 10pm curfew came into effect and the Eat Out to Help Out scheme concluded.

ONS data suggested that labour productivity, as measured by output per hour, fell 1.8% year-on-year. Output per worker fell by 21.1%, but it is expected that this is a result of the furlough scheme allowing employers to retain workers even though they are working no hours.

US COMMENTARY

  • The market continues to wait patiently for any news on a further government stimulus package. However some solace can be taken in the fact that no matter who wins the presidential election next month, there will likely be a sizeable fiscal stimulus package announced.
  • Third quarter earnings season started, giving investors much to digest, with the main area of focus being the level of recovery that companies have seen since the depths of the economic fallout from the pandemic
  • First time jobless claims increased to 898,000, the consensus forecast had been for a drop to 825,000. Continuing claims fell from 10.98mln to 10.02mln, a greater fall than had been anticipated by the market.

Retail sales rose 1.9%, well ahead of estimates, although industrial production showed a 0.6% decline in September.

ASIA COMMENTARY

  • On Tuesday 13th, Hong Kong’s stock market was unexpectedly closed as a tropical storm prompted authorities to shutter businesses and close schools

GLOBAL COMMENTARY

  • The International Monetary Fund has upgraded its GDP forecasts for this year. In its latest World Economic Outlook it predicts that global output will fall by 4.4% in 2020, better than the 5.2% slump forecast in June.
  • The largest shift was in the prediction for the US, with GDP seen shrinking by 4.3%, not the 8% previously anticipated
  • Improvements are also seen in the forecasts for Europe, the UK and China, with the fund saying that these changes are due to a “somewhat less dire” slump in the April-June quarter, and a stronger than expected recovery in July-September
  • Emerging markets saw their forecast fall, with a prediction for a 5.7% contraction, worse than the previously suggested 5% slump

The report also suggests that as a result of the pandemic 80-90mln more people will be pushed into extreme poverty globally.

COVID-19 COMMENTARY

  • Johnson & Johnson are forced to pause their COVID-19 vaccine trial due to ‘an unexplained illness in a study participant’

Pfizer and BioNTech have indicated that they could file for emergency use authorisation from the US Food and Drug Administration by late November for their jointly developed vaccine.

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

19/10/2020

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Blackfinch Group Monday Market Update

Please see below for this week’s market update received from Blackfinch Asset Management earlier today:

In the ever-changing world that we live in, we recognise the importance
of regular and current communication. This weekly news update from our
MPS Portfolio Managers provides you with a short summary of events
around the world which we hope you will find useful. 

Issue 5 | 24th August, 2020

UK COMMENTARY

  • The IHS Markit UK Household Finance Index fell to 40.8 in August from 41.5 in July. 
  • UK retail sales increased by 3.6% in July and are now 3% above the pre-pandemic levels seen in February. Online sales numbers fell by 7.0%, but remain 50.4% higher than in February.
  • The IHS Markit Composite Purchasing Managers’ Index (PMI) for August rose to 60.3 from 57.0 in July, the fastest rate of business activity expansion since October 2013.
  • UK retail footfall showed a weekly increase of 0.8%, following a 3.8% increase the week before. Market research group Springboard suggest the slowdown in growth could be attributable to the hot weather.
  • Market research group Kantar released data showing that the grocery market grew by 14.4% in the 12 weeks to the 9th August, with households averaging 14 shopping trips per month.
  • Inflation, measured by the Consumer Price Index (CPI), rose unexpectedly to 1.1% in July, driven by an increase in culture and recreation costs, analysts had predicted a reading of 0.7%.
  • A Reuters survey of economists suggests that the UK economy will take at least two years to recover from the impact of COVID-19.

US COMMENTARY

  • US/China trade talks are cancelled, President Trump signs an executive order forcing TikTok developer ByteDance to sell off its US operations within 90 days and announces further tightening of restrictions on Huawei.
  • The S&P 500 reached record levels, stopping just short of closing above the 3,400 level.
  • Apple becomes the first company to reach a market capitalisation of US$2trn.
  • News on the next tranche of stimulus from the US government fails to materialise for another week.
  • Minutes from the Federal Reserve offer little encouragement, stating that the pandemic could have a ‘considerable’ impact on the US economic outlook for the medium term. The Federal Reserve also offer no further guidance on interest rates, reiterating that they will remain low for ‘a very long time’.
  • First-time unemployment claims rise by 135,000, counteracting the previous week’s fall.

ASIA COMMENTARY

  • The Chinese Central Bank added 700bn Yuan (c.£76bn) to their medium-term lending facility for commercial lenders in order to help liquidity, helping to boost sentiment.
  • Japanese Gross Domestic Product (GDP) shrinks at 7.8% on a seasonally-adjusted quarterly basis, the third consecutive quarter of negative growth.

These articles are useful for breaking down market input into sectors. This facilitates an all-round view of the markets from the experts in a quick and efficient format.

Please use these blogs to keep your own view of the markets up to date from a variety of different sources.

Keep safe and well.

Paul Green

24/08/2020