NEWS, VIEWS & TRUTHS (31ST AUG – 4TH SEP)

Hello everyone and welcome to the end of the working week.  Bask in your hard-won personal greatness for the achievements you have made and celebrate in style with this week’s News, Views and Truths.

Everything was going so well.  Markets were surging, the Federal Reserve had everyone’s backs and we were closing in on another fantastic period of performance.  Until it all ground to a halt yesterday.

Yesterday saw a 4.96% fall in the US Nasdaq index, with the S&P 500 falling 3.51% and the Dow Jones 2.78%.  As you can probably guess, the culprits for this were tech stocks, or rather the sellers of tech stocks, due to the reliance on these returns during the post-COVID recovery period.

To put some meat on the bones, Tesla fell 9.02%, Apple fell 8.01% and Microsoft fell 6.19%. And to be absolutely fair, this was to the glee of many market participants who have either stayed exclusively in cash during 2020 or are simply allocated to those stocks which, they believe, are undervalued and ignored by the markets.  

And there is no doubt that these falls are significant in size; if you understand that the long-term expected growth of global equities is in the region of 8% per annum, that’s a year’s worth of returns in some cases.  But that would be entirely too simplistic a view.

Because if you look at the returns generated, by either the index as a whole or selected constituent parts as highlighted above, yesterday’s fall could be viewed as simply a drop in the ocean.

Year to date, the Nasdaq index has returned 28.29%, according to Morningstar.  Tesla has returned 372.98% over the same period, with Apple returning 60.98% and Microsoft a mere 35.28%.  Again, context is everything.

And what this year has taught us is that gravity works both ways; to make money, over and above prevailing inflation, there must be a degree of volatility to which you expose your capital.  Investing has been easy over recent years with fixed income yields coming down so far from historical averages, but now it is much, much more difficult.

And please do not let my ambivalence to significant market falls give you the impression that generating returns from equities is easy.  The dichotomy within equity markets means this, in fact, could not be further from the truth; just look at the performance of many, big name, leading UK equity managers and see if you can find some who have returned positive numbers year to date.

What I am saying is that days like yesterday are absolutely par for the course.  Without a 9% daily fall, you cannot hope to generate a 300%+ return, although this is an extreme example.  But entirely justified.

My view remains unchanged; high quality growth has to be the focus for the next 12 months in terms of equity allocation.  This will become even more apparent as the northern hemisphere moves into autumn and winter, which will arrive bringing with them a greater threat of localised pandemic lockdowns.  Let us not be naïve to this, assuming that the health situation has dispersed, because it simply has not. 

However, just like in the first half of the year, those companies that can continue to grow their revenue within this environment will remain attractive to investors and will continue to drive forward their respective indices.

It will not always be the case; however I firmly believe that it will be for now.  So stay the course as you have done up to now.

This week’s “When Andrew Met…” video is on the website here with Andrew Keiller’s update on the Baillie Gifford Global Emerging Markets Leading Companies fund.  We discuss how emerging economies have fared during the pandemic and the performance of the fund during this period.

Once again, my weekly podcast is also live here, with this week’s guest being Vincent Vinatier, manager of the AXA Fintech fund.  Fintech is one of the ten core themes within our new Opportunities Portfolio and Vincent outlines the distinct investment opportunities within Fintech, what the fund invests into and the developments within the sector post-COVID.

That is it for another week.  Stay safe, stay warm and I shall see you all next week.


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