- Global Equities continued their strong recovery in July with the FTSE All-World index gaining 5.1%.
- The technology sector performed strongly.
- The Global Equity Growth model portfolio returned 3.4%, bringing year to date performance to 7.6% versus the FTSE All-World index loss of 1.2%.
Global equity markets continued to climb in July with the FTSE All-World index gaining 5.1%. Smaller companies, and those showing growth and earnings momentum, performed best during the month. The technology sector continued to be the standout performer with little sign of slowing down since the market bottomed in late March.
The Global Equity Growth model portfolio gained 3.4%. Although there was no trading activity over the month, July is typically a busy month for corporate reporting, and earnings season was overall positive. The portfolio’s technology companies performed well with Alibaba, Tencent and Facebook the top performers. At the other end of the scale Ecolab, Eli Lilly and Novartis performed the worst.
Towards the end of July there was increased concern of a second wave of COVID-19 in developed markets. We are by no means relaxed about the rise in case numbers in Europe and the USA, however, a more nuanced approach to lockdowns means that the economic threat of a second wave has diminished. An increase in testing capabilities, track and trace programs, a better understanding of who is at risk from the virus, and more local quarantine policies, should enable economies to continue their recovery. Vaccine development remains of great interest and the month saw promising progression by several candidates.
Consensus is that central bank policies will remain highly stimulative, therefore we expect to continue to see asset prices increase. Shares of those companies exhibiting high growth seem likely to benefit from this, regardless of valuation. The technology sector in particular is likely to see pockets of overvaluation. We are conscious that less positive monetary policies will eventually be adopted when economies have recovered sufficiently, and liquidity stops being regarded as a concern. This is likely to lead to a reassessment of the cost of capital and result in some high-priced high-growth technology companies seeing significant drops in their share price. We continue to assess the merits of some protective strategies that would likely be of benefit to the Global Equity Growth strategy in due course. The US$ weakened by close to 4% over the month, perhaps as risk takers move away from the overvalued safe-haven currency. The enormous monetary and fiscal stimulus has introduced the fear of monetisation and potential inflation. Fortunately, equities have been one of the best asset classes during times of moderate to high inflation.