Global Equity Income Portfolio: December 2021


• Financial markets reacted negatively to news of Omicron and to the associated actions by governments globally to reintroduce travel restrictions.
• The FTSE All-World Index declined by 2.5%, the FTSE All-World High Dividend Index by 3.8% and the Global Equity Income Portfolio by 4.7%.
• During the month, a new holding in Hannover Reinsurance was initiated.

One of the core tenants in preventing the spread of any infectious disease are quarantine measures. Governments were arguably too slow to impose travel restrictions early enough for China, following the initial outbreak in Wuhan. The failure of China to alert the international community to COVID-19 led to the unchecked spread of the virus in late 2019 and early 2020. Travel restrictions were also slow to be applied to India following the discovery of the more infectious Delta variant there in October 2020. This variant is currently by far the most prominent, with cases of the original COVID-19 virus now de minimus. Last month scientists in South Africa identified an unusual variant of COVID-19 and admirably communicated this rapidly to the rest of the world. This Omicron variant contains over 50 mutations including 30 in the spike protein. Encouragingly, early indications are that Omicron may be more readily transmissible however likely to cause less severe disease than previous variants. The international response however was to rapidly close borders while the threat of the new variant can be more thoroughly assessed.

News of the Omicron variant and international travel restrictions resulted in a risk-off environment at month end. The oil price, and associated financial instruments, fell with expectations of reduced demand, and financial stocks were also weak with some factoring in a slower path to interest rate increases. 

The best performing stocks held in the portfolio were National Grid +3.9%, Diageo +1%, and Roche +0.4%. The worst performing stocks held in the portfolio were Merck -14.9%, Lloyds Bank -10.0%, and AT&T – 9.6%.

Our central case is that the new COVID variant will delay economic recovery only briefly. The focus of investors will return to the messaging from central bankers and the implications of their policies on the pace of money supply growth. Inflation looks to be remaining relatively high and so the team has been examining the ability of companies held in the portfolio to pass on price increases. Investments in companies with strong pricing power should generally see better returns in a higher inflationary environment than those who struggle to cope with input price pressure.