The Global Leaders model portfolio gained 3.6%. 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 fund benefited from favourable stock selection in the consumer staples sector with Unilever and Reckitt Benkiser both providing positive updates. The fund’s oil holdings continued to disappoint during the month. However, Shell announced better than expected trading results at the end of the July, while BP, which reported in early August, outlined an ambitious long-term vision. Both companies trade on attractive multiples and should benefit in the medium term from increasing oil demand and prices as economies recover.
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. The Global Leaders approach of seeking high quality companies trading at reasonable valuations should, we hope, benefit from rising markets, while avoiding excessive speculation that can ultimately hurt returns in the event of sharp falls in share prices.
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.
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