November 2020 Commentary

In years to come, when people look back on the Covid-19 crisis and what was a torrid year for the world, November will likely be marked as a turning point. The announcement of three vaccines that are effective against the virus drove a risk-on mood in markets and added fuel to the post-US election rally, eclipsing worries about the near-term economic outlook.
Joe Biden has been elected as the new US president and cabinet appointments, with Ms Yellen back on the forefront, seems to promise a return to policy-making normality, with closer coordination between fiscal and monetary policy. The first coronavirus vaccines are on track for international deployment within weeks on both sides of the Atlantic. This improves the prospects for a recovery in the global economy, and this has subsequently been reflected in asset prices worldwide.
Despite the positive undertones for 2021, the immediate picture remains strained, with record virus cases in the United States, and selectively in Europe. The resultant lockdowns and social distancing measures have upended the momentum in risk assets following the announcement of the multiple vaccines and rollout plans thereof. Additionally, President Donald Trump has refused to throw in the title and is making avail of all of his legal avenues to claw onto the presidency. Despite this, the market at large expects a smooth transition come January.
The Federal Reserve kept its main rate on hold at its lowest level between 0 per cent and 0.25 per cent and reiterated its willingness to keep it there until the pandemic hit recovery reached full employment with higher inflation. As negative interest rates have been ruled out, the minutes of the November Federal Open Market Committee signalled the central bank is ready to make changes in the pace and composition of its asset purchase programme if circumstances shifted, while not being in a hurry to make the changes.
Data has become a very sensitive element for market participants as it depicts the strength of the recovery, particularly in light of the current restrictions in place in the West. Despite economic data confirming that the pace of recovery stalled over the summer, we are nowhere near the levels experienced during the first lockdown.
The economic recovery in the U.S. has been proceeding at a good pace, but there are some signs that it is slowing. The U.S. reported an expansion in manufacturing, below expectations, with the PMI expanding to 57.5 from 59.3 in the previous month and a forecast of 58.0. Similarly, U.S. Services PMI were in expansionary territory at 55.9, lower than the 56.6 in the previous month. This gives confidence to the notion that activity has tentatively bottomed out, and we are initiating the road towards a resumption of economic activity more in line with previous norms.
Within the HY asset space, US high yield performed in line with its European counterparts, closing off a strong month at 4.10 percent. The asset class was benefitted from the Biden victory, vaccine news and subsequent risk-on mode for assets, particularly in the energy sector, which saw a steep recovery on the back of a marked increase in the price of oil.
The CC Global High income fund increased 3.12%, compared to a 4.10% increase in the benchmark, underperforming its benchmark by 98bps comparatively given its underweight position in Energy names, albeit with a much lower level of volatility.
Going forward the Manager believes that credit markets will continue to be supported by the actions taken by the Fed as well as the uplift from the sequential easing of Covid-19 restrictions. To this end, the Manager believes that the fund is well positioned to navigate the current volatile environment and looks to add positions selectively to companies with suitable metrics.