Published on: November 27, 2020

Hello everyone; it does feel like quite some time has passed since I penned a weekly piece, although those of you who are subscribers to our YouTube channel will know that I have been rather busy.  Anyway, it’s a Friday and so welcome to the latest edition of News, Views and Truths.

The markets (and by that I mean the equity markets) have experienced what some are calling a rotation in the past few weeks, with the success stories of 2020, namely tech stocks, falling back as those stocks that have underperformed year-to-date have raced away.  This can be most easily illustrated using the three-month chart below.

Source: Morningstar

Why the change?  All of this has been predicated upon the recent trifecta of vaccine testing stories and the subsequent hope of an end to the Covid-19 pandemic.  This light at the end of the tunnel; a re-normalisation if you will, has benefited those “traditional-world” stocks such as airlines, banks and energy stocks as the market sees the potential vaccine as the opportunity for those companies to resume normal trading environments.  Due to their unloved situation during 2020, this recent rally has been nothing short of stupendous.

And so we now must look towards the future as opposed to dwelling in the past.  You cannot drive a car using the rear-view mirror alone and in the exact same way, you cannot manage your investments based upon the past alone.

So, what are we looking at?  First things first, there will be a vaccine.  At some time.  I’m unsure if it is to be as swift as many hope, but my expectation is that by the end of 2021, there should be a solution to the current situation that we all find ourselves in.  And on that basis, it is my belief that those stocks that have not fared well during 2020; those that have rallied strongly in recent weeks, will continue to drive returns for the market, simply on a valuation basis.

However, we are, more importantly, now entering a new paradigm of reflation in order to stimulate the global economy.  Capital projects will become commonplace as the government spends big on infrastructure to create jobs, boosting employment figures and therefore increasing taxable revenue.  Interest rates will continue to be held at historical lows as global debt increases, allowing people to lend at cheaper rates, while disincentivising savers from holding excess cash on deposit, with the intention to either spend more freely or invest in capital markets.

In short, reflationary measures aim to lift demand for goods by giving people and companies more money and motivation to spend more.  

Regular readers and clients of Three Counties will already understand and appreciate our recent portfolio repositioning with regards to this, increasing our allocations to those assets that provide a hedge to inflationary forces, including direct infrastructure securities.  But once again, we continually look towards the future and our work never stops as the market conditions do not.

And to gain an insight into our way of thinking, join us for the Greaves West and Ayre end-of-year webinar, when yours truly will be delivering my own personal Christmas Carol.  What will the Ghost of Christmas Future bring?  Find out by registering HERE

We have had another content-filled week on our YouTube channel, with Dan Hanbury, Co-Founder of River and Mercantile and manager of their UK Smaller Companies and UK Equity Income funds outlining his thoughts for UK equities moving into the new year.  My Co-Director, Corryn Wild, also rounds up her pension planning mini-series and so if retirement planning is a consideration for you at this point in time, frankly these videos cannot be missed.

Have a great weekend and I shall see you all next week.

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