Weekly multi-asset desk views

Weekly Review: 20 November 2020

Weekly Mag updates

Summary

  • Further positive vaccine news as Moderna reports 94.5% efficacy
  • COVID-19 cases continue to surge across Europe and the US, whilst areas of Asia show concerning rises
  • The US weekly jobless numbers reverse last week’s good news, while October’s industrial production is more upbeat
  • Outlook: Flash PMIs the key data highlight as market digests fall in November activity
  • The portfolio returned +0.85% this week, taking the year-to-date returns to -2.47%

Strategy review

The portfolio returned +0.85% this week, taking the year-to-date returns to -2.47%. This was driven by strong performance in both the equity and fixed income components. Within fixed income our large allocation to US investment grade was a notable performer, while our emerging market exposure was the largest positive driver within equities. The total return strategies component also posted a strong return although this was partly offset by a small negative contribution from our infrastructure holdings. Please see full performance information within the disclosures at the end.

Figure 1: Performance against benchmark

Figure 1: Performance against benchmark

Source: Insight. Gross returns. 1Data as at 20 November 2020. Insight Broad Opportunities Fund (share class S GBP, inception 29 February 2012). 2 Data as at 31 October 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

Just like last week, Monday brought positive news on a COVID-19 vaccine. Moderna reported that their candidate has a 94.5% efficacy rate, and unlike the Pfizer/BioNTech vaccine which needs to be transported at -70 degrees Celsius, it can be moved at ‘just’ -20C. However, unlike last week, the market reaction to this announcement was relatively muted, as it appears that these results were somewhat priced in following the announcement the previous week (given both vaccines use similar technology). Later in the week, Pfizer and BioNTech reported the final analysis of its phase three trial, where the vaccine was deemed to be 95% effective against the virus, catching up with Moderna, and rather importantly, it also has an efficacy rate of 94% for those above 65 years. Whilst we are still some way from these vaccines being mass produced and widely distributed, these high efficacy rates provide hope that governments can prioritise inoculation of the elderly (deemed as the most vulnerable) and society can take significant strides towards returning to pre-COVID-19 life.

The news could not come at a better time, with the virus continuing to spread at an alarming rate. Whilst in recent weeks it has been widely reported that Europe and the US are experiencing high case numbers, there are now also signs of a pick-up across Asia. It was reported that South Korea may increase its social distancing rules, whilst Tokyo’s governor said virus containment measures are likely to be enhanced to combat the rising infection rate.

Moving on from the pandemic, to negotiations between the United Kingdom and the European Union, where mid-week headlines suggested there was the possibility that a deal on the UK’s exit from the Union could be agreed soon, even as early as next week. However, on Thursday talks were temporarily suspended as a member of the team of Michel Barnier, the EU’s chief Brexit negotiator, tested positive for COVID-19. Whilst it seems progress is being made on the matter, a senior official has suggested that the two sides have yet to bridge their differences over a number of issues, including fishing and the governance of a potential trade agreement. Still one to follow as we edge closer to the post-Brexit transition period at the end of this year.

Before moving on from Europe, progress on the EU’s long-term budget and recovery fund hit a roadblock, as both Poland and Hungary opposed the conditions attached, principally upholding the rule of EU law. This poses a risk to the European Commission issuing joint debt as it requires unanimity among the 27 member states to press ahead. On a more positive note, Philip Lane, the Chief Economist for the European Central Bank, reaffirmed that the bank’s aim is to keep financial conditions favourable, and monetary stimulus will seek to continue to make sure governments, companies and households all have access to cheap credit through the pandemic.

Finishing on economic data and following the US jobless claims falling to its lowest number since the initial Covid-19 spike last week, Thursday’s print saw an increase from 711k to 742k, above market expectations of 700k. This could be the beginning of an upward trend which we have generally seen follow an increase in case numbers, and may not start trending downwards until the latest wave subsides. Continuous claims fell to 6.372m from 6.801m the previous week.

Staying with the US where industrial production and retail sales data for October was also released, starting with industrial production; October recorded a rise of 1.1%, with September’s decline being revised to show a smaller contraction than initially expected. Retail sales rose by 0.3%, which fell short of market consensus, and the previous month was revised down. This marks the slowest rate of growth since the initial COVID-19-induced sharp detractions, implying that with cases surging once again, the recovery may be coming to a halt.

Outlook

Looking ahead to next week, virus dynamics will continue to act the primary driver of short-term risk sentiment. As we highlighted above, our focus will be on the US and Asia, where mobility restrictions in various guises have been dominating recent headlines. The high-frequency indicators that we use show a sharp drop in activity in Europe thus far in November, and there are signs that this is now starting to happen in the US. Thus, the key data highlight will be Monday’s release of the ‘flash’ PMIs where a fall in both Manufacturing and Service PMIs is expected. We remain balanced in our portfolio allocation in the run-up to year-end as it is unclear long the market can look through softer data ahead of the vaccine rollout next year. Other highlights on the data front include the IFO business climate indicator for November in Germany, as well as the US consumer confidence reading.

Outside of this, there are political issues that will likely command market attention in both Europe and US. The Brexit talks continue although these have been made ‘virtual’ after the COVID-19 case. While expectations had been tentatively building for an imminent deal, there remains some key unresolved issues we noted above. In the US, there was some disagreement between the Treasury and Federal Reserve towards the end of this week on returning unused relief funding. While the market reaction has been muted thus far, any further escalation in tensions would not be taken well, as a co-ordinated effort on both the fiscal and monetary fronts will be instrumental for a strong recovery in 2021.

 

Important information

5-year performance record to 31 December 2020

  Calendar year returns   12-month rolling returns  
  2020 2019 2018 2017 2016   2019-2020  2018-2019  2017-2018 2016-2017 2015-2016 Currency
Insight's broad opportunities strategy (pooled) (GBP) 0.18 13.13 -4.99 10.13 5.05   0.18 13.13 -4.99 10.13 5.05 GBP
3-month GBP LIBID 0.17 0.68 0.60 0.23 0.38   0.17 0.68 0.60 0.23 0.38  


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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