Global Investment Commentary

For Professional Advisers only. Not for distribution to or to be relied upon by Retail Clients.

December 2020

Most will welcome the end of a year which has brought significant social and economic disruption, worldwide protests, a new US president, mass cancellation of events, home working and wearing a mask becoming the norm.

The US election result and positive news on Covid-19 vaccines helped equity markets rally during the last quarter of 2020 for the third consecutive quarter, significantly outperforming fixed income. Value stocks rose by more than 15% and had their best quarter since 2009. Growth equities gained 11.26%, underperforming over the quarter, but still finished the year ahead by some margin.

Market Round Up
Performance of major equity markets during December 2020:

UK (FTSE 100) +3.28%
US (S&P 500)+3.84%
Europe (MSCI Europe Ex UK)+2.01%
Asia (MSCI Asia Pac Ex Japan)+5.29%
Japan (Nikkei 225)+3.95%
China (SSE Composite)+2.40%

UK
There was another shock for the UK high street in December with Philip Green’s empire Arcadia appointing administrators and putting a reported 13,000 retail jobs at risk. The future of stores within the group including Debenhams, Topshop, Dorothy Perkins and Burton is in question as Deloitte, the administrators, search for buyers and pressure mounts on Mr Green to plug the Arcadia pensions gap himself.

UK house prices grew at the fastest rate since 2016 as buyers try to beat the stamp duty holiday and whilst the second lockdown caused UK business activity to contract sharply the Purchasing Managers Index (PMI) for services did not fall as low as analysts feared. November’s reading of 47.6 still demonstrates contraction but was higher than the estimated 45.8.

The Bank of England announced that it would expand its asset purchase facility by a further £150 billion, and the quarter ended with an eleventh-hour Brexit deal finally being agreed, helping the pound rise in value by 6% since the beginning of October.

Michael Saunders, Bank of England (BoE) policymaker, said this month: “In my view, there may be some modest scope to cut bank rate further but, if we do, it may be preferable to move in relatively small steps”. This as the BoE review the feasibility of taking its benchmark rate negative from the current 0.1% with the central bank expecting a recovery to pre-pandemic levels not to materialise until 2022.

US
US stocks reacted positively to the election result, which contributed to the 11.10% climb for the quarter. December saw the US Supreme Court reject a request by Pennsylvania Republicans to undo the certification of Joe Biden’s victory in the state signalling that Donald Trump’s efforts to overturn the election through litigation have now come to an end.

The prospect of a less confrontational presidency under Joe Biden has pleased the markets. The Democrats still have a shot at completing a blue wave if they manage to win the final Senate seat in Georgia in the run-off election, which would give them a narrow majority. US growth stocks, which have benefited from the shift to online trade caused by Covid-19 this year, underperformed for the quarter after the positive vaccine news.

The last days of the year brought long-awaited relief for pandemic-stricken companies and households. US lawmakers in Congress finally agreed on a pandemic relief plan that will extend many support measures, including renewing direct payments to households and more generous unemployment benefits. Consumer spending was potentially at risk without further government support, making this an important step for the US economy in building a fiscal bridge to the other side of the pandemic.

Europe
The second wave of coronavirus infections and further lockdown restrictions poses ‘a considerable risk’ to the Eurozone economy the International Monetary Fund have warned. Further asset purchases and continuation of cheap loans for banks are being used to try to support the economy. There was a glimmer of hope however with Germany’s factory orders reaching pre-pandemic levels back in February of last year.

On the monetary policy front, the European Central Bank (ECB) increased the size of its planned asset purchases by EUR 500 billion to EUR 1,850 billion and extended the horizon over which it will make these purchases by nine months to the end of March 2022. The caveat was added that purchases can be terminated early, if no longer needed, or extended, if needed. Less of a headline but still important was the fact that the ECB asked banks to limit dividend payments until September 2021 to support the stability of the financial system.

While the words ‘Brexit agreement’ finally brings a feeling of positivity, as always, the devil will be in the detail. With too much to cover in this forum, the implications to cross channel trade, financial services, fishing rights, customs, aviation and trucking, energy et al, will no doubt become apparent in the coming weeks and months.

Conclusion
Performance of major equity markets 2020:

UK (FTSE 100)-11.55%
US (S&P 500)+18.40%
Europe (MSCI Europe Ex UK)+2.10%
Asia (MSCI Asia Pac Ex Japan)+19.06%
Japan (Nikkei 225)+18.26%
China (SSE Composite)+13.87%

The first quarter of 2021 is likely to remain challenging for the global economy. Disappointing economic data is likely to coincide with continued pandemic-related restrictions. So far, the market has broadly been willing to look through the near-term weakness thanks to the vaccine news and policy support measures, but any disappointment on the vaccine front could lead to increased market volatility.

Investment managers generally will have to work hard to make sure their portfolios are positioned sensibly. More than ever, the emphasis will have to be on identifying the regions, sectors and companies that have the strongest underappreciated growth prospects.

Despite many, if not all, of the unknown outcomes mentioned in previous commentaries now being known, there are still uncertainties. Although an end to the Covid-19 crisis may appear to be in sight, the path to recovery may still be bumpy over the coming quarters.

Risk Warnings
Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds. Our funds invest for the long-term and may not be appropriate for investors who plan to take money out within five years. Tax treatment depends on individual circumstances and may change in the future.

Regulatory Information
This material is for distribution to professional clients only and should not be distributed to or relied upon by any other persons. It’s provided for general information purposes only and is not personal advice to anyone to invest in any fund or product. The Key Investor Information Documents and the Prospectuses for all funds are available, in English, free of charge and can be obtained directly using the contact details in this document. They can also be downloaded from www.marlboroughfunds.com. An investor must always read these before investing. Information taken from trade and other sources is believed to be reliable, although we don’t represent this as accurate or complete and it shouldn’t be relied upon as such. Calls may be recorded for training and monitoring purposes. Issued by IFSL International Limited, authorised by Central bank of Ireland and incorporated in Ireland as a limited company with company no. 616854. Directors: Darren Freemantle (British), Raymond O’Neill (Irish), Wayne Green (British) and Dom Clarke (British) Registered office: IFSL International Limited, 7/8 Mount Street Upper, Dublin 2, Ireland.