Global Equity Growth 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 Growth model portfolio returned 8.9% 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 such as financials and oil saw bigger gains, while less impacted sectors lagged.

The Global Equity Growth model portfolio returned 8.9% during the month. Shares of the portfolio’s small oil holding Vermilion gained a startling 63% as oil futures rose due to market participants factoring in rising demand. No less than 15 of the 27 holdings provided double digit returns. 

Alibaba was the main disappointment declining 13.6% following disappointing news on the delay of the Ant financial IPO and increases in antitrust supervision in China. Meanwhile the firm reported stellar growth in retail sales following a better than expected singles day event.  The stock is however still up over 25% year to date. We envisage the long run growth potential of on-line retail in China to be substantial and remain excited about the prospects of growth in cloud services. 

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 the US Federal Reserve (“the Fed”) 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 is 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.

Recoveries of share prices in certain sectors that fail to meet their costs of capital are somewhat frustrating for investors in quality companies. The “dash for trash” trade is not one that the Global Equity Growth style tends to benefit from however we anticipate it will probably be short lived. Companies that compound their intrinsic worth over time and deliver above market earnings growth will win out. As former Liverpool FC manager once reportedly said: “Form is temporary, and class is permanent”.