COVID Uncertainty – Northern Europe Acts Early

Markets clearly got spooked on 28th October by the very real prospect of a second national lockdown. Have markets priced this in almost immediately? It’s not yet come into force but news of France and Germany entering their own forms of “lockdown-lite” have added weight to the expectation.

We have seen these ‘inflection’ points or worry bouts numerous times in the past few months, which is making an uncomfortable ride for anyone tracking the main markets. Although, it is true that the virus appears to be picking up again in terms of infection, hospitalisation and unfortunately, mortality rates. It goes without saying that any death related to COVID19 is one death too many and a tragedy of our time.

Previous mini sell offs have tended to be one-day affairs with a rebound the day after. Generally, to move the markets on a structural basis, there has to be a significant change to the macro picture – which you could argue lockdown brings along, but it would probably be temporary in nature and we’ve been living in a semi-permanent lockdown type basis for some time now.

We are confident the Becketts portfolios are resilient in nature and invested in sectors which have the potential to benefit in this type of environment. For example, our largest sector exposure is telecoms, media & technology.

The portfolios have a high level of diversification across asset classes, industry sectors and geographies. Large cap UK equities are not a dominant aspect, which in a way, makes the FTSE100 index an inaccurate benchmark for comparison purposes.

The media tend to latch on to the FTSE100 index during a daily sell-off type event with the repetitive “£X billion wiped off” type headline. Of course, this isn’t fake news but it really isn’t particularly helpful for longer term investors and belies the benefits of long term accumulation strategies.

If we chart the performance of the Becketts portfolios, against the FTSE100 index, we can see the disparate levels of performance:

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Since the market highs, pre-lockdown, in February 2020 – the FTSE100 index has largely failed to recover its lost ground – still some 23% down since the high point. Our managed investment solutions are not immune from market volatility and diversification helps to mitigate unsystematic risk, but as we know, systematic risk will be ever present.

In April and May we took advantage of the opportunity to add “undervalued” assets to the portfolio and in October we added defensive assets and improved credit quality, both have which have added value. We will closely monitor the current phase and will continue to take opportunity and or reduce risk as the situation dictates.

James Thompson
Director, Chartered Financial Planner, Senior Member Investment Committee