Summary
• During the month the FTSE All-World Index declined 4.8%. The FTSE High Dividend World index gained +0.2% and the Global Equity Income Portfolio gained 2.0%. This was considerably better than the EAA Fund Global Equity Income peer return of -3.3%.
• The portfolio’s best performing stocks were Shell +15.9%, BP +14.7% and BAT +14.6%.
• The biggest detractors were Diageo -8.6%, Roche -7.9% and Microsoft -7.5%
To support economies during the pandemic, central banks have used a combination of ultralow interest rates and record levels of quantitative easing. This has meant that global liquidity has been at an all-time high. The Chair of the Federal Reserve (FED), Jerome Powell, gave a speech towards month end. This outlined plans to both raise interest rates and to reverse quantitative easing. Chairman Powell highlighted that the bank’s dual mandate is for stable prices and employment. Since the financial crisis, central banks have been widely thought to have factored asset prices into their policy thinking. Indeed, in a speech in 2013 former Chairman Ben Bernanke outlined an aim of FED to “push” investors to take more risk. This has led many investors to adopt the “buy the dip” strategy feeling safe in the knowledge that a “central bank put” would step in and support financial markets.
Inflation is at elevated levels; employment is recovering, and economies have largely reopened after the coronavirus pandemic. Investors interpreted Chairman Powell’s comments as an indication that the central bank put is being withdrawn. Financial markets do have an impact on the real economy however the primary market for equities is of minimal consequence. Likely some support from central banks might take effect if high yield spreads were to increase.
During the month the FTSE All-World Index declined 4.8%. The FTSE High Dividend World index gained +0.2% and the Global Equity Income Portfolio gained 2.0%. This was considerably better than the EAA Fund Global Equity Income peer return of -3.3%.
The portfolio’s best performing stocks were Shell +15.9%, BP +14.7% and BAT +14.6%. Oil prices have been well supported with OPEC plus members remaining disciplined and little non-OPEC supply coming on stream. Demand has recovered to pre-pandemic levels and inventories have been dwindling. In a risk-off environment tobacco tends to perform well though we have been pleasantly surprised about the extent of this for BAT which now trades at a similar multiple to peers.
The biggest detractors were Diageo -8.6%, Roche -7.9% and Microsoft -7.5%.
We continue to adopt risk averse positioning. It is likely that as the tide of liquidity goes out, assets will become available at attractive prices.