Weekly multi-asset desk views

Weekly Review: 16 October 2020

Weekly Mag updates

Summary

  • Risk markets broadly flat as no progress is made on additional US fiscal stimulus
  • The COVID second wave continues to cause concern as large case numbers are reported across Europe
  • US earnings season kicks off, with 8% of the S&P500 market capitalisation reporting
  • Outlook: flash PMIs, further earnings reports and political developments likely to take centre stage this week
  • The portfolio returned +0.25% this week, taking the year-to-date returns to -4.24%

Strategy review

The portfolio returned +0.25% this week, taking the year-to-date returns to -4.24%. Our fixed income exposures were the largest contributor to returns, whilst equities were broadly flat and real assets detracted slightly. Our total return strategies were a positive contributor with relative value trades leading the way.

Figure 1: Performance against benchmark

Figure 1: Performance against benchmark

Source: Insight. Gross returns. 1Data as at 16th October 2020. Insight Broad Opportunities Fund (share class S GBP, inception 29 February 2012. 2 Data as at 30 September 2020. Insight broad opportunities strategy (inception 31 Dec 2004). The long-term track record of the Insight broad opportunities strategy has a base currency of USD. This performance has been adjusted by interest rate differentials to derive a GBP proxy. No currency adjustments have been made to the underlying investments. Please see full performance information within the disclosures at the end.

Market and economic review

Risk assets started the week strongly, however as at the time of writing, appear to be closing the week broadly flat. The possibility of a further US stimulus bill remains on the cards, even if little progress was made this week. A driver behind the declines towards the end of the week was the concerning number of Covid-19 cases being reported, particularly out of Europe. Whilst the week was fairly quiet on the central bank front, it was reported that the Bank of England (BoE) conferred with banks over their readiness to cope with negative interest rates (in a sign that they are moving ever closer), setting a deadline of 12 November for a formal response. At the same time, there are growing expectations that the BoE will raise the size of its bond-purchasing programme, currently set at £745bn.

On the stimulus front, the latest from US President Trump suggests that whilst open to a large stimulus package (potentially even higher than the $1.8trn he claims to have pushed in the past), any short-term progress seems unlikely. This followed news that Treasury Secretary Mnuchin does not expect a bill to reach Trump’s desk prior to the election next month. With the Senate Majority leader McConnell rejecting calls for such high levels of funding, extra importance weighs on whether the Democrats take back the Senate with regards to the level of stimulus that may be eventually agreed upon.

Moving on to the pandemic, and the second wave numbers being reported out of Europe continue to be a cause for concern. According to numbers reported by Bloomberg, over the week (Thursday to Thursday), the UK reported a further 111,953 cases, an increase of 19.8% from the week before. In France it was a similar picture, with an additional 139,293 cases, which represents an increase of 19.6%. Whilst Germany (36, 571, 11.6%) is faring slightly better in limiting the spread, Belgium (48,363, 33.7%) has seen a large rise in cases. Spain (73,050, 8.6%), having been one of the initial second-wave hot-spots, is starting to see numbers improve, whilst Italy (43,204, 12.8%) is beginning to show signs of following in the footsteps of the UK and France, which is creating some unease within markets.

With case numbers reaching such levels, governments have started to impose stricter lockdown measures in attempts to slow the spread of the virus and limit pressure on healthcare systems. For example, French President Macron announced that Paris, as well as eight other large cities, will be subject to a curfew from 9pm to 6am lasting at least 4 weeks. In the UK, the government has raised London to high alert, meaning that residents can no longer mix indoors with other households. Authorities in Spain, Switzerland and Poland have walked a similar path.

The US earnings season kicked off in earnest this week with 8% of the S&P 500 market cap reporting. For Q3, expectations are for headline earnings-per-share growth of -22% year-on-year (yoy), which represents a considerable pickup from the nadir of -33% yoy last quarter. The quarterly pickup is similar in Europe, but from a much lower level with Q3 expectations at -38% yoy vs -52% yoy in Q2. The key takeaway from the last earnings season was the ever-growing divergence in fortunes between the large-cap technology firms and the rest of the market. Indeed, this trend is expected to continue this quarter, with earnings in the US technology sector only expected to fall -1.5%. The focus this week however was on financials with the five largest US banks reporting - the majority delivered strong beats on analyst estimates, driven by lower than expected loss provisions and continued strength in trading revenues. However, this masked a more worrying trend in commercial & retail banking activities, where the current interest rate environment meant net interest income fell sharply yoy. This appeared to be the market’s focus, as negative share price reaction was particularly notable, with the S&P 500 Banks index suffering over the week.

Finishing with data releases: there was an increase in the US jobless claims reported for the week ending 10th October. The number came in at 898k, which was 73k higher than the market expected, and the highest number printed in the last seven weeks. With the lack of additional stimulus, at least in the short-term, this print will add to concerns that the recovery in the US labour market is running out of steam. Outside of that, US consumer inflation rose to 1.4% on an annual basis in September, marking the highest growth rate in the series since March and the fourth successive month of acceleration in the inflation rate since it troughed in May at 0.1%.

Outlook

Given the increase in Covid-19 cases across Europe this week, developments on the pandemic will likely be a focal point for markets next week. Outside of that, flash PMIs will be released where we will get a sense of how several economies have fared moving through October. Earnings season will continue with 90 of the S&P 500 reporting, including names such as Netflix, Coca Cola, Intel and AT&T, to name a few.

In the political sphere, the final presidential debate ahead of the US election is due to take place on Thursday. Across the Atlantic, negotiations between the UK and the EU, in regard to their future trading relationship, will continue, following the EU calling on the UK to “make the necessary moves to make an agreement possible”.

 

Important information

5-year performance record to 30 September 2020

  Calendar year returns   12-month rolling returns  
  2019 2018 2017 2016 2015   2019-2020  2018-2019  2017-2018 2016-2017 2015-2016 Currency
Insight's broad opportunities strategy (pooled) (GBP) 13.13 -4.99 10.13 5.05 -1.19   -3.60 5.80 2.18 6.82 5.45 GBP
3-month GBP LIBID 0.68 0.60 0.23 0.38 0.45   0.36 0.70 0.50 0.21 0.42  


Please refer to the following risk disclosures. 
Returns are shown gross of fees. Returns are shown for the Insight Broad Opportunities Fund (share class S GBP, inception 29 February 2012) and the Insight Broad Opportunities Strategy (inception 31 Dec 2004).

RISK DISCLOSURES

Past performance is not indicative of future results. Investment in any strategy involves a risk of loss which may partly be due to exchange rate fluctuations.

The performance results shown, whether net or gross of investment management fees, reflect the reinvestment of dividends and/or income and other earnings. Any gross of fees performance does not include fees and charges and these can have a material detrimental effect on the performance of an investment.

Any target performance aims are not a guarantee, may not be achieved and a capital loss may occur. Strategies which have a higher performance aim generally take more risk to achieve this and so have a greater potential for the returns to be significantly different than expected. Portfolio holdings are subject to change, for information only and are not investment recommendations.

ASSOCIATED INVESTMENT RISKS

Multi-asset

  • Derivatives may be used to generate returns as well as to reduce costs and/or the overall risk of the portfolio. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment.
  • Investments in bonds are affected by interest rates and inflation trends which may affect the value of the portfolio.
  • The investment manager may invest in instruments which can be difficult to sell when markets are stressed.
  • Property assets are inherently less liquid and more difficult to sell than other assets. The valuation of physical property is a matter of the valuer's judgement rather than fact.
  • While efforts will be made to eliminate potential inequalities between shareholders in a pooled fund through the performance fee calculation methodology, there may be occasions where a shareholder may pay a performance fee for which they have not received a commensurate benefit.

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