OBI Portfolio Resilience Continues
After another strong week in equity markets, this week’s market and portfolio performance continued to deliver, with returns from all six of the main OBI portfolios now higher than their annualised return targets for the first time this year. Although 2021 has been defined by highly volatile and turbulent market conditions, it has also been a period that has provided captivating investment opportunities across a wide range of assets due to policy support, early cycle dynamics, and an improving macroeconomic backdrop. The caveat to this is that we still are over four months away from the year-end, and performance could fluctuate higher or lower from where it currently stands. That being said, while risks remain in the short term, we remain confident that there is still further upside to be captured, with the OBI strategy well positioned to deliver another strong year of returns for investors.
Risk assets and inflation-linked assets have been the top performers this week on the back of improving investor sentiment and better-than-expected economic data flows. Despite Chinese officials announcing a new crackdown on the insurance industry this week, mispriced Chinese firms have provided an opportunity for investors, something we touched upon in last week’s market update. Having gained over 4% in last week’s market update, the gains observed this week (+0.70%) further suggest that investors initially overreacted to the regulatory crackdowns announced in July by Chinese authorities.
Within the US, technology firms lagged while financials and industrials gained on the back of the elevated US inflation data release, causing investors to prolong their speculation as to how transitory inflation will be. The UK and European equities extended their gains from the previous week as investors digested strong earnings reports, economic recovery prospects, and abating pandemic concerns. According to Thompson Reuters, in Europe, 267 of the top 600 European firms have reported earnings data for Q2 2021, with 73.80% of these reporting revenues that exceeded analyst estimates. Meanwhile, Covid-19 cases within the UK and Europe have either stalled or fallen, substantiating the positive 2021 economic outlook.
Given the rise in risk appetite over the week, investors have been actively searching for higher-yielding assets within fixed income sectors. Apart from the sterling high yield and index-linked gilt sectors, the other sectors have all fallen as improving investor sentiment outweighed any negative short term macroeconomic headwinds. While the high yield sector has remained flat this week given the strong performance in the YTD, index-linked gilts have outperformed non-equity assets as investors position their portfolios for a macroeconomic environment with inflationary pressures stronger than forecasts.
Against this backdrop, the OBI portfolios have extended their gains over the week. OBI 5 to 8 all posted attractive gains given their higher equity weightings (compared with OBI 3 and 4), with OBI 5, 7, and 8 all beating the benchmark’s weekly performance. Given the macroeconomic tailwinds highlighted above, performance has been driven by our Asia and value-orientated equity holdings, while some of our European exposure has observed profit-taking after a stellar month of gains through July. OBI 3 to 4 have steadily gained over the week owing to strong multi-asset performance, with these funds continuing to benefit from a high level of diversification during volatile market conditions.
Overall, we welcome another strong week of portfolio performance given favourable macroeconomic tailwinds, and we remain optimistic on the opportunities that may emerge throughout the rest of 2021 and beyond.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges and trading spreads. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment.
Key Events We Are Watching This Week:
- Tuesday 17th: UK and Europe Employment Data.
- Wednesday 18th: UK Inflation Data.
This Day in History
On this day, in 1908, Henry Ford’s company built the first Model T car. With 15 million sold, it stood eighth on the top-ten list of most sold cars of all time, as of 2012.
Thank you for reading, have a great week!
Jason, Gina & Ben
