In recent weeks, uncertainty on what the future may hold beyond the economic restart across global regions has left markets prone to volatility. Although largely positive, disparity among economic forecasts has resulted in investors continuously scrutinising weekly data releases to identify clues as to where financial markets will move next, causing these same investors to move between investment strategies in a bid to beat the market. Despite this uncertainty in the short term, we maintain our positive medium-term outlook for financial markets. Instead of allowing the noisy restart dynamics to determine our investment decision making, we continue to focus on the improving medium and long-term outlook.
In equity markets, the S&P 500 continues to hover around its all-time highs, as mega cap tech stocks benefit from the Federal Reserve maintaining their easy monetary policy course. Continental European equities also improved over the week as analysts highlight the attractive underlying fundamentals for the region. UK equities on the other hand underperformed, as investors digest the rising Covid case data and the potential implications of a rise in cases on firm earnings as we transition through 2021. Chinese equities have continued their struggle on the back of the regulatory crackdown on the region’s largest tech firms, while Japan has seen its equities rebound on the back of renewed hopes for a swift global economic recovery.
Over the past week, the UK and US have published stronger-than-expected inflation data, which would typically support value-oriented equities. The market reaction to the data has not been quite as clear-cut as this however, as policy makers downplayed inflationary pressures, focusing instead on the transitory components of the inflation data. The muted response is also evident in the non-equities sector, where indices have remained flat over the week despite the strong inflation releases. The inflation dynamic is expected to remain a key theme for much of the year, and many analysts expect today’s elevated price pressures to fall towards the end of this year.
Portfolio movements over the week have been relatively stagnant, with the higher risk portfolios experiencing more challenging conditions. In Europe, small cap firms have strongly outperformed their large cap counterparts, while our Japanese and emerging market funds have also contributed positively to the portfolio’s performance. Our Chinese exposure has performed in line with the region’s index for the reasons mentioned above, meanwhile our clean energy exposure continues to exhibit higher-than-average volatility as it erases some of its gains from the previous week.
With portfolio performance relatively stagnant over the week, it is important to reiterate the year-to-date portfolio performance in absolute terms. As it stands, OBI 3 is 48 basis points away from its annualised performance target, meanwhile OBI 8 is 181 basis points away. With the economic recovery expected to gain momentum as 2021 progresses, the portfolios have a great opportunity to meet and potentially surpass the performance targets, and we remain optimistic on achieving this while also mitigating portfolio volatility.
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:
- W/C Monday 19th: Earnings season continues in the US.
- Friday 23rd: EU Markit PMI Flash release.
This Day in History
On this day, in 1922, the humble chimney sweep was swept away by machines with the advent of giant vacuum cleaners which do the job quicker, cleaner, and cheaper than the traditional chimney sweep.
Thank you for reading, have a great week!
Jason, Gina & Ben
