• The risk-on environment following the positive results from three coronavirus vaccines in November continued into December. Smaller companies and many value-oriented equities saw a significant share price rally. The Global Equity Growth Portfolio returned 3.3% during the month, bringing year to date performance to +23.4%.
• The UK and EU came to an agreement over their future trading relationship.
• New variants of COVID-19 threaten for a darker economic tunnel prior to the relief that will come from vaccination programs. Central banks continuing with easy monetary policy likely helps investors continue to stay the course.
Vaccine optimism and continued easy money supply extended the equity market rally into December. As expected after some brinkmanship the UK and EU came to an agreement over their future relationship, while in the USA fiscal spending plans became more advanced. All of these events were positive for sentiment and investors enjoyed a risk on environment. The performance of smaller capitalisation and value-oriented stocks was particularly strong with the light at the end of the COVID economic tunnel seeming brighter and a risk-on environment developing.
The Global Equity Growth Portfolio returned 3.3% with strong returns from healthcare holdings, while consumer discretionary holdings lagged. Eli Lilly and Company shares rose 15.9% during the month, as the company released results of a new drug tirzepatide phase 2b trial. While there are still hurdles to come the drug appears to show a substantial benefit to type 2 diabetes patients. Alibaba Group was the portfolio’s worst performer declining 11.6%. China widened their anti-trust rules during November. There was fear that increased scrutiny of the firm’s monopolistic practices would result in reduced future growth. Our expectations remain that the firm will adapt practices to stay on the right side of changing regulation.
No adjustments to the model portfolio were made during the month.
Other than the wonderful vaccine news from November, COVID-19 virus news has been increasingly negative. Two new variants, one in the UK and one in South Africa, have been shown to have increased transmission rates. This means that economically things might well get worse in the near term however an end to economic lockdowns are in sight, due to the rollout of vaccination programs. Nonetheless, equity markets tend to discount short term difficulties and, with central banks still supportive and providing we see no further pathogenic mutations, the coming economic recovery and lack of returns available from other asset classes remains encouraging for equities.
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