Summary

Global investors were comforted on a few fronts during the month, helping to explain why October was a very positive month for global equity returns. The FTSE All-World Index climbed 5.0% in USD terms. 

• Many corporates reported earnings ahead of market expectations and raised guidance.
• US lawmakers passed a short-term bill to avert a government shutdown. The debt ceiling has however only been pushed out until December and so the issue may return before year end.
• Signs from China appear to be for increasing support for financial markets. The People's Bank of China Governor Yi Gang provided assurance that there will be no contagion from the Evergrande collapse, and liquidity injections have been made. 
• The European Central Bank indicated that there will be a fresh batch of supportive measures after those put in place to support economies during the pandemic expire.

The Global Equity Growth model portfolio returned 5.3%. This was more or less in line with the index and a little ahead of the fund peer group return of 4.9%.

United Health was the portfolio’s best performing holding during the month climbing 17.6%. The company issued results modestly ahead of expectation and slightly increased guidance. We were pleasantly surprised by the rapid share price increase though are revisiting the investment case given the multiple expansion. Microsoft shares also rose 17.6%. Driven by increasing cloud adoption Microsoft grew free cash flow by 30% and underlying earnings by 25%, which was 10% ahead of consensus estimates. Despite little news Home Depot returned 13.3% perhaps in anticipation of better results due in November, as household spending is expected to have increased as lockdowns end. 

On the negative side Lancashire slid 8.6%, issuing a profit warning on expected claims from natural catastrophe events and the South African riots. The firm remains well capitalised and set to benefit from higher insurance rates available.

During the month a new position was established in Argonaut Gold. Using cash flows generated from Mexican operations, the company is in the process of developing a long life and tier one mining asset in Canada. Successful development is very likely to led to a re-rating of the company by equity investors and if not an approach from a gold major trading on much higher multiples seems probable.

As we have written recently some Chinese equities look to be materially under-priced, given their growth prospects and barriers to entry, but we are cognisant of many of the factors that help explain this and await a time to become more constructive.

We continue to believe that a more material recovery is expected on a full-year basis as precautionary savings fully unwind, and as economic activity recovers off a low base. Continued COVID-19 vaccine rollouts are a positive for the global economy as lockdown restrictions continue to be lifted. Escalating rental and housing costs will begin to be reflected in shelter prices, roughly a third of the inflation basket in the US, and hence pose an upside risk to inflation. A formal tapering plan is expected to be announced by the Federal Reserve at the next FOMC meeting.  For now, at least the backdrop looks supportive for equity prices.