September 2020 Commentary
The Global Opportunities fund was down 1.68% for the month of September and down 3.50% for the year. This performance is a result of the prudent stance of the Manager to invest in stocks, which continue to do well in uncertain times whilst also slowly building a position in those stocks in beaten down industries a longer-term view on their valuations.
The third quarter emphasized the benefits of geographic diversification. Asian equities returned over 10% and are the joint best performing equity region year to date, up over 5%. Meanwhile, UK equities fell 3% and are down 20% year to date. European equities also lagged the rest of the world, with returns of 2% and -7% for the quarter and year to date respectively. US equities delivered nearly 9% over the quarter and over 5% this year.
Asia’s strong performance has been helped by China’s remarkable success in containing the virus. This has allowed subway usage in China’s major cities to recover to only 10% below 2019 levels, compared with tube use in London, which remained down more than 60% even before the latest work-from-home measures were announced.
In the US, the summer started with a sharp rise in the number of people in hospital with Covid-19, but since late July that number has declined sharply, perhaps helped by increased use of face masks. In Europe and the UK, hospitalizations have been very low for most of the summer, but have started to creep up, with Spain and then France and the UK seeing a rise in cases. This has prompted concerns that, as summer turns to autumn and temperatures drop, hospitalizations and deaths could start to rise more meaningfully.
The US election is also heating up, with polls now suggesting that Trump has gained ground in some key swing states, such as Florida and North Carolina, but still needs to make further gains in at least two of the other key swing states of Arizona, Michigan, Pennsylvania and Wisconsin if he is to retain the presidency.
The final quarter of the year could be particularly eventful. By January, we should know the outcome of the US election, whether a no-deal Brexit was avoided and whether US Congress has passed more fiscal stimulus. Most importantly, there is a good chance that we will get news on a vaccine. For now, we continue to believe the focus should be on diversification, both regionally and by asset class, with alternative and targeted absolute return strategies playing an increasingly important role in portfolio diversification. However, we also think it’s worth considering what to buy if we get good news on a vaccine.
Given the high degree of uncertainty around the outlook for the virus and a vaccine, the Investment Manager continues to believe it makes sense to aim for a defensive portfolio taking up selective positions in cyclical stocks with long-term value. In this environment, the Investment Manager favors an up-in-quality approach across for stocks with a focus on valuations relative to fundamentals.
