News, Views & Truths (05/07/21)

Published on: July 5, 2021

It’s coming home.  Apparently.  Possibly. Probably? …What is a guaranteed, nailed-on, dead certainty, is that it’s the start of another week, heralded by the latest News, Views and Truths.

So, the first half of 2021 is now officially over and this now gives us an opportunity to look back at the previous 6 months, take stock of what has occurred and have a brief look at the topics that will most likely grab the headlines in the remaining months of the year.

And the top headline is that H1 2021 has been very positive for investors, in the main.

Source: Morningstar

Equities have continued their bull-run since the crash in March 2020, with most indices delivering double-digit returns in the first six months of 2021.  UK equities, long term global laggards, led the way, with the large cap FTSE 100 delivering 10.91% and the mid cap FTSE 250 counterpart returning a similar 10.32%.  However, all of this was shadowed by a stunning 17.42% return by the Numis Smaller Companies (ex-Investment Trusts) index.  

The US market continued to lead the way in terms of global performance, with all three major indices delivering outsized returns; the broad S&P 500 delivered 14.04%, highlighting the benefit of diversifying across both value and growth investment styles.

Closer to home, Europe was also a happy hunting ground for investors, benefitting from the cyclical reopening of trade in the same way as the FTSE 100.  The Euro Stoxx 50 index delivered 11.31% and the region continues to be a favoured area for our own investment team.

The only negative performance came from Japan, with the Nikkei 225 index falling 3.44% as a result of a disappointing vaccine rollout.  Japan faces two critical challenges in the upcoming quarter; the first involves Japan’s strategy for containing the ongoing COVID-19 pandemic with the second depending on the success of the upcoming Tokyo Olympics.  However, with such globally bifurcated investment performance, led by some of the world’s most fantastic companies, Japanese equities are beginning to look attractive and will most likely take up more of our discussion time moving into the second half of the year. 

However, all of this positivity was offset by the performance of fixed income.  UK gilts fell 5.67% during the first half of 2021, replicated by the Global Aggregate bond index falling 4.22% in a similar fashion.

And this, we believe, will likely continue as a result of global markets reopening, as growth prospects continue to rise.

Moving forward, all eyes are on Central Banks, to observe their projected pathway to tapering: a withdrawal of economic stimulus first stated during the Global Financial Crisis of 2008 and exacerbated hugely during the 2020 Pandemic Crash.

The approach taken will dictate returns over the coming months, if not years and, although initial signs are positive in their signposting of a careful approach, the risk of policy error and therefore a “taper tantrum” remains high.

Therefore, although we continue to see “risk” assets such as equities in a favourable light, volatility in asset price movements will still continue to dominate and, as such, careful portfolio allocation remains of paramount importance.

But remember, it’s coming home…

Disclaimer: Past performance is no guide to future performance and you could get back less than you invested. This is for information purposes only and does not constitute advice. If you do not understand any of the content, we would recommend you seek financial advice.

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