Weekly Digest: going nowhere fast
31 May 2020
It’s important to be accountable for one’s views, not least, perhaps, because one can learn as much, if not more, from the mistakes as from the successes.
Unfortunately, fine words butter few parsnips, and even getting most of the strategic calls right has failed to provide much in the way of investment returns so far this year. The FTSE UK Private Investor Balanced Index shows a total return of just 0.7% year-to-date. Indeed, it only crept back into positive territory last Thursday, having been sporting a loss of more than 5% late in March. Performance from the start of the calendar year is certainly not helped by the fact that last year was such a good one. Rolling 12-month performance looks a lot better, with an 11% gain. Investing is very much a marathon rather than a sprint.
At the regional equity level, I have rarely seen such a small amount of performance divergence when measured in constant currencies. World equities are up 2.0% YTD. The UK is +2.2%; USA is +2.3%; Europe (ex-UK) is +1.8%; Japan is +2.6%. Any relative outperformance would quickly be eaten up by dealing costs if we tried to chase every last basis point available. Asian Emerging Markets are the laggards (+0.6%), but within that China is +4.5%. (All data are FTSE Indices from Bloomberg, apart from US, which is S&P 500.) Bond markets have provided small negative returns so far, and it was notable that when equity markets sold of aggressively in February bond markets failed to provide balancing positive returns, which very much defied the correlation pattern that has prevailed since the early 1990s.
|FTSE 100 Weekly Winners|
|Royal Bank of Scotland Group||8.0%|
|FTSE 100 Weekly Losers|
The good news is that the corporate sector, in aggregate, continues to prosper. Boosted by tax cuts (and that strong oil price), US companies are forecast to grow earnings by more than 20% in 2018, about the twice the rate of growth expected in the UK and Europe. However, this could well be “as good as it gets”. Indeed, the CEO of the US construction equipment maker Caterpillar made just such a comment on the results call a couple of weeks ago, describing the excellent first quarter as a “high water mark”. Cue an immediate 6% fall in the share price despite an upgrade to current year guidance. Investors need tastier carrots to lure them forward.
Of course, one can paint a different picture by changing the reference date. The FTSE 100 Index has just completed a seventh consecutive week of gains from its March low (something not achieved since 2005), rising 12% in the process and threatening its all-time high of January this year. In the mea culpa department, we have remained underweight during this period in our tactical asset allocation, although we did note in February that there was a growing feeling of “last to leave the UK market, please turn out the lights”, so we certainly weren’t urging anyone to bail out then. The relative performance looks less impressive when one takes into account the fall in the pound over the same period (notably -4.5% vs the US dollar).
As we enter the traditionally less productive period for investor returns that starts in May and runs until September, we remain in no hurry to commit portfolios more aggressively to equities at this moment.
Finally, Imelda Marcos, former First Lady of The Philippines was noted for her extensive collection of shoes. This week, Hole In My Shoe was a 1967 hit for which band?
Year-to-date market performance
*Lagged to latest UK IPD Total Return All Property Index (Jan 2018)
FTSE 100 Index, past 12 months
Past performance is no indicator of future performance
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