Weekly multi-asset desk views

Weekly Review: 30 October 2020

Weekly Mag updates

Summary

  • According to polls, Joe Biden remains in a strong position to be elected as US President next week
  • Lockdown restrictions become stricter across Europe as the increase in COVID-19 cases remains a concern
  • Outlook: next week we have the US election result, a bundle of earnings reports and activity from both the Fed and BoE
  • The portfolio returned -1.74% this week, taking the year-to-date returns to -6.29%

Strategy review

The portfolio returned -1.74% this week, taking the year-to-date returns to -6.29%. Our exposure to equities was the largest negative contributor over the week, whilst our allocation to both high yield and emerging market debt gave back some of their recent gains. Total return strategies were negative in aggregate, whilst small losses also came from the real assets section of the portfolio.

Figure 1: Performance against benchmark

Figure 1: Performance against benchmark

Source: Insight. Gross returns. 1Data as at 30 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. 

Market and economic review

As the final full week before the election draws to a close, Joe Biden remains in a strong position to become the next US President, with the FiveThirtyEight model giving him an 89% chance of winning, and national polling showing an average lead of 8.8%. That being said, betting markets are more cautious, with the PredictIt probability at 64% for a Biden win. Whilst additional fiscal stimulus may well be granted despite who wins, any level of uncertainty around the outcome, with a close result possibly being contested, will likely be unhelpful for risk assets.

On the virus front, the spread across Europe remains at concerning levels. The extent of which has resulted in both Germany and France moving to a partial lockdown. In Germany, restaurants, bars, nightclubs, gyms, event venues, cinemas and amusement parks will all be closed until at least the end of November. Whilst in France, tougher restrictions include the shutting of bars and restaurants, as well as a ban on domestic travel and public gatherings.

Economic activity will likely take the brunt of the stricter restrictions, and this will certainly be on the minds of the European Central Bank (ECB) who met on Thursday for their latest policy decision. At the meeting, the main refinancing and deposit rates were left unchanged, at 0.00% and -0.5% respectively, with the marginal lending facility rate also unchanged at 0.25%. Perhaps more interestingly, the door has been left open for further easing of policy in the coming months. In the press release, the ECB noted that "In the current environment of risks clearly tilted to the downside, the Governing Council will carefully assess the incoming information, including the dynamics of the pandemic, prospects for a rollout of vaccines and developments in the exchange rate”. The release then went on to say that on the basis of the above assessment (due in December), policy tools will be recalibrated to respond to the unfolding situation and to “ensure that financing conditions remain favourite to support the economic recovery and counteract the negative impact of the pandemic on the projected inflation path.” So, unless there is a major turnaround in the economic backdrop and virus dynamics, it seems likely that further easing will follow.

There has been plenty for markets to digest, even before mentioning the earnings season that continued in full flow this week, with 185 companies reporting, which represents almost 50% of S&P 500 market capitalisation. The headline EPS growth rate for Q3 is now at -15% which is a big beat on expectations for -22%, while sales growth is running at -3% which is also a strong beat on preseason consensus. Thus far, almost 90% of companies which have reported have beaten expectations which is well above historical averages. The schedule this week was dominated by the mega-caps with all 5 of the largest index constituents reporting. In many ways, the reporting from these names echoed the themes of the whole earnings season. All of the firms posted very strong Q3 numbers with several even posting record revenues. However, price reaction was negative, particularly for Apple, which fell 5% after iPhone sales in China disappointed. Amazon results were also notable, with strong revenue offset by high cost growth. The impact on margins of the pandemic is something we are monitoring closely. Caterpillar and 3M also reported this week, again share price reaction was negative as both firms refused to give guidance due to high uncertainty in global demand.

Finishing on the data docket, this week brought news that the US economy expanded at a record 33.1% pace (on an annualised basis), with business reopening and consumer spending powered by stimulus injections. This follows the Q2 decline of 31.4%, and overall puts US GDP at -3.5% below pre-Covid-19 (Q4 2019) levels. Staying with the US, initial jobless claims came in at 751k for the week ending 24th October, a decrease of 40k from the previous week and slightly ahead of market expectations.  Whilst this is certainly welcome news, a continuation in the spread of the virus across the US may well dampen future releases.

Outlook

Next week will likely be as busy as this one, with the US election result set to dominate news. Whilst it is not necessarily certain that a winner will be declared on election night, we are at least likely to know the leanings of the race and the possible composition of the senate. Florida and North Carolina will be worth watching, as these states could give an early signal on the result given the large number of early voters, which can be counted ahead of the poll closure.

Away from the US election, the earnings season continues in full force with another 224 companies from the S&P 500 and Euro Stoxx 600 reporting. 

Finally, attention remains on central bank action following the ECB’s meeting this week, with both the Federal Reserve and the Bank of England (BoE) due to announce their latest monetary policy decision. On the former, similar to the ECB, no change is currently expected by the market, however there may well be signals that further easing could follow in months to come. From the BoE, whilst there is no expectation of an interest rate cut, we could see additional stimulus by way of an increase to the Bank’s Asset Purchase Facility.

 

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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