Market Commentary – May 2020

This week, our new Director, James Thompson FPFS IMC, highlighted the current global market conditions and outlined the factors that are influencing market volatility at this time as we look to secure long-term growth for all our clients. We hope James’ summary can offer some insight into our thinking and philosophy when it comes to fund management and our long-term investment growth mind-set:

“Firstly, we don’t know on a day-to-day, week-to-week, (or possibly even month-to-month) basis whether an investment made will be, in the short-term, advantageous or otherwise. On this basis, it stands to reason that any time is a ‘good’ time to enter the markets with the focus on long-term growth. But, clearly, in volatile markets (and we can measure the short term volatility via the “VIX” index below), there is clear logic in maintaining a close watch on market levels”:

Picture

“The volatility index, as shown, shows what we know already and (which won’t come as a surprise), the volatility peaked mid-March when the fear, shock and global lockdown announcements were at a high point. You can see the level in ‘normal’ conditions at circa 20 points and the peak close to 82 points and then the downward trend through April and May.”

When considering the factors that influence short-term movements of markets, James outlines that, “At any one time, the short-term movements of the market will be influenced by sentiment and available information and it’s very much a push-pull situation (push up or pull down) depending on the weight of news and expectation.”
James’  “Push-Up and Pull Down” factors are as follows:

Push Up

  • The medical situation under control (for now)
  • Earlier regions of ‘hotspot’ easing lockdown conditions
  • Positive Chinese business surveys
  • The expectation of successful vaccination/treatment
  • Policy stimulus and “whatever it takes” mentality/government support
  • The low rate of interest on government debt
  • The success of particular sectors/industries (e.g. groceries, utilities, staples, e-commerce, technologies, tobacco, pharmaceuticals, healthcare, biotech, logistics, at-home alternatives, home entertainment, social media, general insurance) 

Pull Down

  • Deep recession and unemployment
  • Little global co-operation and US/China tensions
  • Oil price collapse
  • It is largely unknown if or when a successful vaccine will be available
  • There are still no known treatments
  • The prospect of the reinfection rate rising and further lockdowns
  • The prospect of high levels of government debt and future prospects of higher taxation
  • Government intervention (e.g. banking dividends)
  • The longer term economic impact is still very difficult to foresee
  • Sectors and industries that rely on us leaving our homes have been badly affected and will continue to do so (airlines, travel   and holiday, hospitality, leisure, automotive, oil and gas)

Looking at global investment market performance, James observes, “Yes, they have stabilised somewhat since the highs of January/February to the lows of mid to late March and are currently trading sideways as the push/pull factors are seemingly equalling each other out.”

A quick look at some of the main global markets indicates a consistency of the effect of these push and pull factors.

Main Global markets – February peaks to time of writing (13th May.):

Picture

In contrast, Becketts’ most “risky” portfolio (Aggressive) only saw a -12.53% decline over the same period, with the other less aggressive portfolios spread between -4.65% (Ultra-Cautious) and -10.88% (Moderately Aggressive).

James concludes, “Our stance towards remaining invested stays true and this has shown to have been effective as our 12-month performance graphs now show a relatively smaller reduction in value – with no portfolio down less than 5%, regardless of risk level (as at the time of writing)”:

Picture

​“Nevertheless, when there are individuals’ funds not yet committed to markets, we believe the existing short-term volatility brings short-term opportunities, therefore the drip-feeding of investments into markets remains our primary approach where possible and appropriate.”