A Brief History of How to Lose Money
by Richard Stutley, CFA
With global equities on track to deliver their best-ever month, against a backdrop of the deepest recession since the Second World War, investors are understandably questioning whether markets have come back too far and too fast. Valuations appear rich in certain areas but trying to time the market is notoriously difficult and can lead to disappointment. At times like this it is worth reflecting on the common ways in which investors suffer permanent impairment of capital as opposed to short term fluctuations in the value of their investments. While the history of finance is long and varied, three factors appear time and again in this regard: counterparty risk, leverage and liquidity. This is a good place for investors to start when appraising risk in their portfolios.
Market Snapshot
- Global equities rose +2.4% last week on the back of further positive vaccine news
- The Oxford/AstraZeneca vaccine has been shown to have a high efficacy rate, though this will be subject to further testing
- Brent crude rose +7.2% ending the week at$48.2 a barrel
- Gold fell -4.4% to end the week at $1787.8 an ounce
Road to Recovery
by Andrew Hardy, CFA
Following a third consecutive Monday of hugely encouraging news in the fight against COVID-19, global equities are well on track to delivering their best one month return in over a decade, up 11% and counting. Vaccine developments have propelled economically sensitive sectors such as energy, financials and industrials higher in November – with tech stocks in the slow lane for a change – resulting in one of the most rapid shifts in market leadership ever seen in markets. The recovery potential in ‘value’ stocks remains massive in our opinion, particularly in the areas hardest hit by the pandemic, but investors don’t necessarily have to take on high levels of risk or sacrifice quality in their portfolios, in order to access this opportunity. The infrastructure sector is a prime example of an area that we believe has plenty of open road ahead.
Market Snapshot
- Global equity markets returned +0.4% last week
- The Oxford/AstraZeneca vaccine is shown to prevent 70% of Covid cases in clinical trials. This follows last week’s announcement from Moderna of 94.5% efficacy in phase 3 trials
- Brent crude rose +5.1% to $44.96 a barrel
- Gold fell by -1.0% to $1870.99 per ounce
Light at the end of the tunnel
by Christopher Butcher
News last week of a potentially highly effective vaccine against Covid-19 has raised hopes that there is an end in sight to what has been an extremely challenging time for countries around the world. The virus has claimed the lives of 1.25 million people and paralysed the world economy. The Pfizer and BioNTech finding was the result of the first independent analysis of any Covid-19 vaccine in phase 3 trials – the final stage before commercial licensing – and it was found to be 90% effective, a level well above expectations. To put this into context, the widely-used measles vaccine is 97% effective and the season flu vaccination is between 40% and 60% effective. This is an important milestone on our path towards potentially ending this pandemic and the developers of the vaccine described it is a “great day for science and humanity”.
Market Snapshot
- Global equities rose 2.4% last week on the back of positive vaccine news, which sparked a rotation from ‘stay at home’ tech stocks to cyclicals
- The Pfizer and BioNTech vaccine has shown to be over 90% effective in preventing infections of Covid-19 from its efficacy data release
- Brent crude rose 8.4% ending the week at $42.8 a barrel
- Gold fell -3.2% to end the week at $1889.2 an ounce
Cheque List
by Michael Clough
Over the weekend we had confirmation that Joe Biden has won the race to become the next President of the United States of America. Despite Trump claiming election fraud, vowing legal action and thus refusing to concede, Biden is set to take up residence in the White House. One of the main talking points in the run up to this election was around a second stimulus package to help sustain the US economic recovery after a record 31% (annualised) collapse in GDP in Q2. Prior to the election discussions had reached an impasse, putting even greater importance on the composition of US Congress – including the House of Representatives and the Senate – which, at least for this issue, is arguably more important than who actually sits in the White House.
Market Snapshot
- The major global equity index returned +7.7% last week as all regions rallied.
- Joe Biden is on-track to become the 46th president of the US despite expected legal contestation from the Trump administration.
- Brent crude rose 5.3% to $39.5 a barrel.
- Gold rose 3.9% to $1951.4 per ounce
Inflated expectations?
by Stephen Nguyen, CFA
It has been one of the main discussion points of the past three years, five years and even decades in the case of Japan: will inflation return? Low prices and ultra-low rates must surely end at some point; or maybe not… We are amid a pandemic and going through a period of depressed economic activity, so why would inflation even register on investors’ radars? As an asset allocator, it is imperative we consider what might happen to inflation and inflation expectations in the coming years in order to effectively build robust portfolios for our clients.
Market Snapshot
- Global equities fell -5.6% on the week as the number of Covid-19 cases surged in Europe and the US
- The US economy expanded at a record 33.1% annualised rate in Q3, which beat market expectations
- Brent crude fell -10.3% ending the week at $37.5 a barrel
- Gold fell -1.2% to end the week at $1878.8 an ounce
ESG: Don’t be a spectator
by Jackson Franks
Environmental, Social and Governance (ESG) investing is at the forefront of most investors’ minds and the real estate sector is no exception. A survey published by Bentall Kennedy, Real Property Association of Canada (REALPAC) and the United Nations Environment Programme Finance Initiative (UNEP FI), which included investment managers representing over $1 trillion in assets under management from North America, Europe, and the Asia-Pacific region found that 93% of investors include ESG criteria in real estate investment decisions. At Momentum we are no different.
Market Snapshot
- Global equities returned -0.4% last week amidst a lack of direction on stimulus measures and rising Covid-19 cases
- Polling around the US presidential race still points to a victory for Joe Biden
- Brent crude fell -2.7% ending the week at $41.8 a barrel
- Gold rose +0.1% to end the week at $1902.1 an ounce
Relationship Problems
by Robert White, CFA
With the US election now just two weeks away, investors are busy forming expectations on the result and looking at the potential policy implications of either a Biden or Trump victory. While there is plenty of short term focus on the eventual shape of any additional stimulus package to emerge from Congress, perhaps the most important issue for long term investors will be how US-China relations develop from here. For those wanting a detailed outline of our thinking on this issue, we have recently published a thought piece in addition to this week’s blog which is available here.
Market Snapshot
- A relatively flat week for global equities which returned -0.3%
- The IMF upgraded their global growth projection to a -4.4% contraction this year, from a -4.9% contraction forecasted in June
- Brent crude rose +0.2% ending the week at $42.9 a barrel
- Gold fell -1.6% to end the week at $1899.3 an ounce
Ipse dixit? No, thanks
by Lorenzo La Posta, CFA
Pythagoras was a clever man: philosopher, cosmologist, musician and mathematician. His famous theorem within Euclidean geometry is one we all learn at school, despite the 2500 years that have now gone by since the man lived. His opinions were so well respected that his disciples across Magna Graecia would appeal to his assertions, rather than to evidence or reason, as a watertight argument. They would simply use the formula “ipse dixit”, literally meaning “he said so”. We, at Momentum, are no Pythagoreans and do not accept dogmatic assertions from anyone, nor do we blindly trust common knowledge. All we trust is evidence and when this is not given to us, the scavenger hunt begins.
Market Snapshot
- A strong week for global equity markets which returned 3.6%
- Optimism grows that a US stimulus deal will be reached
- Brent crude oil rose 9.1% to $42.8 a barrel
- Gold rose 1.6% to $1930.4 per ounce
The Perfect Storm
by Alex Harvey, CFA
If readers cast their minds back to February this year, they will remember the horror that unfolded on the high seas with dozens of cruise ships being forced to stay at sea as the first wave of Coronavirus took hold. The poster child for the industry was the ‘Diamond Princess’, a Gem-class cruise ship with a capacity of nearly 2700 passengers and 1100 crew, which eventually anchored at Yokohama port in Japan where passengers had to remain on board and self-isolate for several weeks. The world watched on thinking perhaps this would be contained to Asian shores but of course this was wrong as we now know. Global equities would continue to make gains for almost three weeks after the cruise liner had docked before freefalling, only to reach a bottom just over a month after that. Far from plain sailing.
Market Snapshot
- A relatively strong week for global markets which returned 1.6%
- President Trump and the First Lady test positive for coronavirus
- Brent crude fell -6.3% ending the week at $39.3 a barrel
- Gold rose 2.1% to end the week at $1899.8 an ounce
The long & short of what’s next
by James Klempster, CFA
This week heralds the start of the final quarter of 2020. What an extraordinary year it has been thus far. Of course, for investment managers, the key area to focus on is what next? This question can have multiple different dimensions. For example, the answer might be very different if we are focusing on the long term as opposed to the short term. We have made the point repeatedly that in the long run we will cast this virus off. It remains a truism that the virus is not unpicking the very fabric of society nor is it destroying the functioning of capital markets and as a result, from an investment perspective at least, we will get through this.
Market Snapshot
- Sell-off in global risk assets
- Uptick in coronavirus cases hampers service sector
- Brent crude fell 2.9% to $41.9 a barrel
- Gold fell 4.6% ending the week at $1861.6 per ounce
