Weekly multi-asset desk views

Weekly Review: 2 October 2020

Weekly Mag updates

Summary

  • Risk assets edged higher for most of the week on optimism over a further US fiscal stimulus package and generally supportive economic data releases
  • Politics: US elections potentially complicated by President Trump’s positive COVID test; Brexit talks reaching a crunch point
  • COVID second wave being managed through local restrictions; interplay of virus dynamics and economic activity a key issue for markets
  • The portfolio returned +1.15% this week, taking the year-to-date returns to -5.81%.

Strategy review

  • The portfolio returned +1.15% this week, taking the year-to-date returns to -5.81%.
  • All the major asset categories made a positive contribution over the week, with the largest coming from equity and infrastructure exposures within real assets. Elsewhere, performance within total return strategies was driven by option-based positions designed to capture returns from range trading or upward moves across a mix of equity markets.

Figure 1: Performance agaisnt benchmark

Figure 1: Performance against benchmark

Source: Insight. Gross returns. 1Data as at 2 October 2020. Insight Broad Opportunities Fund (share class S GBP, inception 29 February 2012. 2 Data as at 31 August 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 edged higher for most of the week supported by hopes of a further round of US fiscal stimulus and economic data which generally painted a picture of ongoing economic recovery, albeit with some signs of moderation, and beholden to COVID-19 dynamics.

One of the concerns that drove a retracement in risk assets in September was that the next round of fiscal stimulus in the US (including the extension of some expiring benefits) would be delayed until after the Presidential elections. Markets were therefore encouraged by reports of renewed discussion between Treasury Secretary Mnuchin and House Speaker Pelosi aimed at finding a compromise package that could win bipartisan support. A number of Federal Reserve governors have mentioned the need for more fiscal support to augment their policies and markets will remain attuned to how this develops. The other major political event in the US was the much anticipated first live debate between presidential candidates Trump and Biden. It turned out be a raucous event, which surveys suggested that Biden edged. Indeed, subsequent opinion data suggested his lead has extended with an implied win probability of 66% according to quotes from PredictIt (at the time of writing). News early on Friday that President Trump had tested positive for COVID-19 led to a risk-off tone in markets and introduces some uncertainty on how the run-up to the election may proceed.

Turning to Europe, there was some concern on reports that implementation of the €750bn European Recovery Funds could be delayed. It requires unanimous agreement from member states, but there have been some disputes over aspects of conditionality. Germany appears to be leading efforts to find a compromise for what is a key policy support for the eurozone economic recovery. Meanwhile, Brexit talks continued with initial suggestions that the mood music was improving, contrasting with subsequent news that EU was initiating legal proceedings against the UK with respect to the draft Internal Market Bill. With mid-October the practical deadline for reaching an agreement, we have reached the crunch point in terms of finding compromise on the key sticking points of fisheries and state aid. Reports on Friday suggested that Prime Minister Johnson would meet with European Commission President Von der Leyen over the weekend.

Meanwhile, COVID-19 case growth continued, with Europe experiencing a second wave. We have commented before that what seems to be different this time are the remarkably lower hospitalisation and mortality rates. The challenge for leaders is to find the optimum mix of policy to contain the virus while maximising economic activity. For now, more localised or targeted restrictions have been introduced across countries, rather than wholesale lockdowns. This will remain a key area of focus for markets in terms of trying to gauge how activity levels and the momentum of economic recovery will evolve.

Economic data releases over the week pointed to an ongoing recovery in activity around the world, but a high degree of uncertainty remains on how its momentum will evolve from here. PMI surveys from China came in at 51.5 for manufacturing and 55.9 for non-manufacturing, both marginally higher than the prior month. The final reading of manufacturing PMI for the eurozone came in unchanged at 53.7 and markets will look forward to the final services reading due next week – the estimate had come in at 47.6, a noticeable step down from prior 50.5. (PMI readings below 50 suggest conditions are worsening vs prior months). In the US, the ISM manufacturing survey came in at 55.4, moderating from prior 56.6, but still in expansion territory. It will be interesting to see how these readings evolve over the coming months as we move beyond post-lockdown replenishment of inventories and pent up demand.

US employment data presented a mixed picture. Non-farm payrolls edged higher by 661,000 but that was lower than 859,000 expected, and a step down from the prior (upwardly revised) 1,489,000. Earlier in the week, the latest continuing claims fell to 11.7m vs a prior reading of 12.6m. However, if we compare that to pre-COVID-19 levels of c1.7m it is clear there is still a long way to go in terms of getting back to ‘normal’. This underscores the importance of securing further fiscal support for the economy and an extension of unemployment benefits. Disney’s announcement that it intends to lay off 28,000 employees from its US theme parks was a painful reminder of the ongoing disruption caused by the virus, and the risks to employment across the world as companies continue to adjust their cost bases, particularly as some government support measures taper off.

Against that background, core government bond yields largely traded sideways and the US$ weakened reversing the recent trend. 

Outlook

Politics will likely remain in focus next week. In the US attention will be on President Trump’s condition, the first vice-presidential debate, as well as developments on the fiscal stimulus. In Europe, the focus will be on Brexit discussions and any outcomes from the weekend meeting between Prime Minister Johnson and European Commission President Von der Leyen. In terms of economic data, the key releases next week will be service sector and composite PMI readings around the world.

 

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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