Global Equity Income Portfolio: December 2020

Summary

  • The US election result and positive results from COVID-19 vaccine trials were extremely positive for global equities. The global index, (the FTSE All World Index) gained 12.4% with particular strength in sectors hard-hit by economic shutdowns and companies with weak balance sheets. Many national stock markets hit new all-time highs.
  • The Global Equity Income model portfolio returned 13.2% during the month
  • The environment remains positive for equities with continued monetary easing and expectations for vaccination programs to begin in developed markets.
Market update

November saw the USA election and news of pivotal trials from three coronavirus vaccines. These sparked a sharp rally in equity markets with the FTSE All World Index climbing a startling 12.4%. A number of equity indices hit new all-time highs during the month. Shares of companies that have been more challenged by the impacts of Coronavirus saw bigger gains, while less impacted sectors lagged.

The Global Equity Income model portfolio returned 13.2% during the month. Shares of the portfolio’s oil holdings Shell and BP climbed 37% and 33% as oil futures rose as market participants factored in rising demand. Financial holdings also performed very strongly as investors recognised the depressed valuations were likely unjustified relative to the economic disruption seen. Legal & General and Lloyds delivered over 30% returns. There were no outright disappointments, although consumer staples names lagged the recovery. Trading activity was limited.

Following the Biden presidency win, it is probable that the Senate will be controlled by the Republican party and as such Biden will find it difficult to enact economic policy. The Republican senate previously declined to sanction a Republican president’s plans for fiscal stimulus so is less likely to approve those from a Democrat led White House. Consensus expectations are therefore that will need to continue with easy monetary policies in order to sustain the economy. This ought to prove positive for equity markets.

Pivotal trial announcements from Pfizer/BioNTech, Moderna and Oxford-AstraZeneca mean that investors can now see light at the end of the COVID-19 lockdown tunnel. Once the vaccines are approved by national regulators, the roll out of vaccination programs will be limited by manufacturing capacity, it’s likely that this will change by mid-year 2021 when distribution and medical professionals will become the rate-limiting step. In the meantime, economic data looks set to worsen once more as second waves of the virus continue to invoke government responses that reduce economic activity.