Weekly multi-asset desk views

Weekly Review: 9 October 2020

Weekly Mag updates

Summary

  • Risk markets buoyed by optimism of further fiscal stimulus in the US
  • September PMIs paint a picture of an ongoing global recovery, with services lagging manufacturing
  • Outlook: politics remains in the spotlight, whilst the US earnings season kicks off in earnest next week
  • The portfolio returned +1.42% this week, taking the year-to-date returns to -4.48%

Strategy review

The portfolio returned +1.42% this week, taking the year-to-date returns to -4.48%. All components of the strategy were positive for performance over the week. Leading the way were our equity exposures, whilst our total return strategies also contributed meaningfully. Our infrastructure holdings were additive, whilst exposures at the riskier end of the credit spectrum helped to deliver positive returns in the fixed income component.

Figure 1: Performance against benchmark

Figure 1: Performance against benchmark

Source: Insight. Gross returns. 1Data as at 9 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 markets were buoyed by optimism surrounding additional fiscal support from the US, potentially even this side of the forthcoming election. Earlier in the week, US President Donald Trump instructed White House negotiators to stop further stimulus discussions until after the election. However, as the week progressed, he somewhat softened that rhetoric - stating that there is a good chance something could be agreed. This more positive sentiment, along with Joe Biden’s chance of winning the election increasing according to FiveThirtyEight’s prediction model (which ticked up to 84% on Friday), raised the prospects of significant further stimulus. This may be even more likely should the Democratic Party also win the Senate, which the same prediction model suggests has a 68% probability. 

With the first round of fiscal stimulus expiring some time ago, it is unsurprising that risk markets are reacting to news of further government support. Looking at how the pause in stimulus is affecting the economy, the latest initial jobless claims number in the US (for the week ending 3 October) came in at 840,000. To put this into perspective, the record pre-COVID was 595,000, all the way back in 1982. Therefore, the current number still exceeds even the worst week post the global financial crisis, adding to concerns that the recovery in the US labour market is stalling.

Staying with economic data releases, the week brought a number of services and composite PMI prints for September following the recent manufacturing numbers. In summary, the final PMIs painted a picture of an ongoing global recovery but the 0.5 point rise in the global manufacturing aggregate was offset by a -0.4 point fall in the global services aggregate. This means that the global composite reading edged lower over the month to 52.1. The reversal in services was most apparent in Europe, where the re-imposition of restrictions has been most evident. The relative resilience of manufacturing activity makes sense – it is less affected by renewed activity restrictions. But it remains to be seen how long these divergent trends can hold and labour market conditions appear to be worsening as companies begin to adjust to what are seen to be longer-term demand shifts in a post-COVID world.

We may get a sense of how companies are coping as we move through the third quarter earnings season which kicks off in earnest next week. In the US, expectations are for headline earnings per-share growth of -22% year-on-year (y-o-y), which represents a considerable pickup from the nadir of -33% y-o-y last quarter. A similar pick-up is expected in Europe, but from a much lower level with Q3 expectations at -38% y-o-y vs -52% y-o-y in Q2. The key takeaway from 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%. We will be particularly focused on aggregate share-price reaction, which can shine a light on whether positioning looks stretched, and management guidance, which has been notable for its absence in the ‘post-COVID’ world.

Switching tack to COVID-19. Using Bloomberg data, the number of global confirmed cases reached 36.57million on Friday, which is a 6% increase week-on-week. Whilst that number continues to rise significantly across many countries, death rates and hospitalisations, while edging up, have not moved up to what we saw during the first wave. Should this trend continue, say perhaps because herd immunity is building, it will be interesting to see whether governments move to embrace less restrictive, more localised approaches to virus spikes.

Outlook

Next week has plenty for markets to focus on. The continued spread of COVID-19 cases will inevitably be followed with rigour, especially as we approach the winter months in the Northern Hemisphere. With case numbers this week continuing to warrant cause for concern, authorities will persist in trying to strike a balance between keeping economies open while ensuring virus numbers do not over-stretch healthcare systems.

Outside of COVID-19, the US election will remain a focal point with just 25 days to go. With Trump pulling out of the second ‘virtual’ presidential debate, and polls suggesting that Biden’s chance of winning is trending upwards, we will likely hear more from the President as the week progresses. Staying with politics, next week could be important for UK-EU negotiations with the European Council summit towards the end of the week, marking a self-imposed deadline by the UK Prime Minister Boris Johnson to reach an agreement on a trade deal.

Finishing up, the calendar is relatively quiet from both a central bank and data perspective, however as mentioned above the US earnings season kicks off with a number of financials reporting, including Citigroup, Goldman Sachs, JPMorgan Chase and Wells Fargo. 

 

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.

*Please read important information about Insight's data collection policies HERE before sharing your personal information with us on email.