Multi Asset Funds: September 2020

 

Summary

• Equities rose firmly in August, with the FTSE All World TR Index registering a gain of 6.24%. Increasing interest in cyclical sectors was evident during the month.

• Markets were led by the technology-laden US Nasdaq Index which, alongside the S&P 500, reached new highs on the year. This was driven by ongoing easy monetary policy and supportive commentary from the US Federal Reserve regarding flexibility over inflation targets.

• Fixed-income markets reflected the increased risk appetite from investors and US treasuries and investment-grade credit gave up some gains, despite interest rate expectations remaining depressed.

• Oil prices and commodities, including gold, moved ahead during the month aided by a weakening US dollar against major currencies. 

• Global economic data was marginally better over the month, improving from depressed levels. A modest decline in US unemployment was evident as well as benign inflation figures.  

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Market update

August saw another strong return from equity markets, as recovery hopes continued to gather both from an economic standpoint and on expectations that a COVID-19 vaccine was either imminent or likely in the next few months. Global equities registered gains of 6.24%, as the FTSE All World TR Index ploughed ahead. Markets were led by the technology-laden US Nasdaq Index which, alongside the S&P 500, reached new highs on the year.

Monetary accommodation remained extremely supportive to markets on an overall basis and, as mentioned over previous months, from the perspective of investors there is little incentive to hold cash. The comment ‘don’t fight the Fed’ has never been more true, although this can be looked at on a global scale given the current rate policies of central banks around the world.

It would seem that central banks will continue to ease further, if necessary, and lower rates for longer is the overriding theme. The US Federal Reserve has adjusted its own policies regarding flexibility over inflation and is prepared to tolerate a higher level, if necessary, by shifting to average inflation targeting.

With the largely positive second quarter earnings season behind us, risk-taking behaviour has become rife among investors in perceived safe havens such as the technology and communications sectors, where social distancing is not an issue and where an economic slowdown will have the least impact. Throughout the month US markets have dominated progress given the large number of technology businesses in that geographic region. The technology-laden Nasdaq rose some 9.6%, led by what some would say were speculative excesses in Tesla, Nvidia and Zoom Video Communications, and with little sign of profit taking as momentum investing took over.

Fixed-income markets reflected the increased risk appetite from investors, while US treasuries and investment-grade credit gave up some gains, despite longer-term interest rate expectations remaining depressed. The 10-year US treasury saw its yield rise to 0.69% from 0.50%. The lower rates for longer viewpoint saw some support for US high yield as credit default risk is seen as minimal given the monetary and fiscal backdrop being so supportive.   

Oil prices and commodities, including gold, moved ahead during the month aided by a weakening US dollar against other currencies. The US dollar weakened by some 1.3% against major currencies over the month. 

Global economic data was marginally better in August, admittedly improving from depressed levels. A modest decline in US unemployment was also evident as well as benign inflation figures. However, while admittedly backward looking, the second quarter economic performance from Europe made for sombre reading as the eurozone reported shrinking GDP at a rate of -12.1%, with Spain being the hardest hit. 

Fund strategy

We remain with a neutral equity position, however, we are marginally repositioning this stance to add to equities at the expense of our cash weightings.  

While markets may appear buoyant and we wish to participate, we are aware that risks remain somewhat elevated. We recognise concerns such as the success of COVID-19 vaccines, the upcoming US election and the continuation of US-China trade discussions, not to mention growing fiscal concerns. This is why we have strategically counterbalanced the ‘risk’ elements of the fund by holding gold and inflation-linked sovereign assets. This is equally the case with our view that the US dollar remains overvalued, although somewhat less so given its decline over the past few months. As previously highlighted, the vast fiscal and monetary accommodation seen does naturally lend itself to support for other safe-haven currencies as interest rate differentials have narrowed dramatically. 

The dispersion around easing of lockdowns may hinder economic recovery rates, which leads us to invest where we expect resilience to be seen. As such, we prefer the Asian- ex Japan region, outside of the US where valuations do not appear quite so extended.

 

Fund performance

In our Global Multi-Asset Funds we moved ahead across the range, with the Global Growth Fund up a further 3.5% on the month, building on the 2.9% in July. Equity markets provided the majority of returns with positive contributions from the US and Japan. Fixed income positions largely eased back a little. 

The Global Defensive Fund was up 0.6%, while Global Balanced was also up 2.0%.In the Sterling Asset Management Fund (GBP base) we delivered 1.1%.