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Global Equity Income Portfolio: November 2020


• A second wave of COVID-19 cases across the US and Europe has increased investor nervousness, alongside uncertainties around the US election and Brexit negotiations.
• Earnings have been largely better than expected, although share prices within defensive sectors such as pharmaceuticals and staples have lagged, partly due to pricing pressures which may be introduced by a new US president.
• Communications and consumer sectors led the way while, once again, the energy sector saw renewed pressure on the emergence of higher COVID-19 infection rates and a lack of action to curtail oil supplies by OPEC.

Market update

Global equity markets continued to decline in October with the FTSE All World High Dividend Index falling 2.7%.

A second wave of COVID-19 infections resulted in increased numbers of lockdowns being reintroduced in European countries. Infections in the US continued to climb, though election campaigning continued apace. During the month, mega capitalisation stocks underperformed smaller companies, this was particularly true in the US where market expectations of a Democrat win were thought to make these more favourable. Traditional value-based stocks also generally performed better than stocks trading on higher multiples.

The Global Equity Income portfolio (USD) declined by 4.1% with poor performance from the pharmaceutical and consumer staples sectors. Despite good quarterly updates from the portfolio’s healthcare stocks, these performed relatively poorly, all falling between 8% and 10%. This was likely due to speculation of increased pricing pressure of pharmaceuticals that a new US president could bring. The premium that the US pays for drugs has been a multi-decade issue. As for other nations, however, pharmaceuticals represent around 10% of overall healthcare spend and are well known to reduce overall healthcare costs when administered properly. The lobbying power of the pharmaceutical industry in the US is not to be underestimated given the amount of innovation the industry provides, the jobs it supports and tax revenues it provides. In the near term, the incredible efforts by the industry to provide solutions to the COVID-10 crisis may result in a halo effect around the sector. Our belief is that the eventual impact of any drug pricing pressures is likely to be more nuanced than implied by the market move in pharmaceutical company share prices last month. 

The portfolio’s financial holdings performed relatively well given expectations of a rising interest rate yield curve.

BAE was the worst-performing holding, though there was little news. The outlook for the business in the medium term remains robust, but there may be speculation that future government spending on the defence sector may see increasing budgetary pressures given the level of accumulated government debt in the UK and US, in addition to the impact of a depressed oil price upon potential future business from the Middle East. 

November will be a volatile month following a closely fought US election and possible announcements of phase-three trial results of coronavirus vaccines. The team has planned positioning for a range of US election result scenarios. Based on past performance of pre-election polls the only thing we can really be sure of is a short period of uncertainty. Buckle up!