Are you sitting comfortably?
by Richard Parfect
As I write this there is a good news story of a B777 executing a successful diversion and emergency landing following the dramatic loss of one of its two engines. Somewhat unnervingly for passengers the remnants of the burning engine were clear to see. More seriously there was fuselage damage too, however the pilots’ frequent rehearsed emergency procedures and risk controls prevented a catastrophic outcome. Passenger unease is understandably common on aircraft, particularly if the aircraft enters clear air turbulence. Whilst even significant buffeting is normally well within design limits of the aircraft, passengers can become alarmed that something catastrophic will befall them. However, the best thing passengers can do is sit back, try and relax and trust in the professionalism of the pilots and engineers; the turbulence will pass.
Market Snapshot
- Global equities fell -2.8% last week
- 10-year US Treasury yields rose 14.4bps on Thursday in their biggest daily move since March 2020, before falling -11.5bps on Friday. The substantial moves were driven by real rates increasing, rather than higher inflation expectations
- Brent crude rose 5.1% last week to $66.1 a barrel
- Gold fell -2.8% to $1734.0 per ounce.
Coin toss
by Andrew Hardy, CFA
Digital gold or “index for money laundering1 ”? Fiat currency hedge or irrational mania? Bitcoin divides opinion more than most, but the bulls are in the ascendency at present and the 12-year old cryptocurrency is gathering many new followers as a result. Its 6-fold increase in price in the last year has been the driver; creating a FOMO (fear of missing out) effect whilst also increasing the size of its market, which reached $1 trillion over the weekend, to a level where institutions begin to consider it more seriously. While we expect that cryptocurrencies will become more mainstream over the coming years, we’ve never held Bitcoin in portfolios, nor do we have any plans to include it. I’ll provide a few thoughts around this here.
Market Snapshot
- Global equities returned -0.4% last week whilst global bond yields rise.
- The Pfizer-BioNtech vaccine is reported to be 89.4% effective in preventing Covid-19 infections according to an Israeli study.
- Brent crude oil rose 0.8% to $62.9 a barrel.
- Gold fell -2.2% to $1784.3 per ounce.
The surge in markets in late 2020, triggered by the positive vaccine news, Biden’s success in the US election and the favourable settling of the UK-EU trade negotiations, continued into the new year. Equity markets made a strong start while government bond yields rose. However, optimism waned as January wore on, concerns rising about Covid mutations, the pace of vaccine roll-out, especially in the EU, and the economic damage caused by tightened and extended lockdowns across many parts of the world, most notably Europe. By month end, expectations for a sharp economic recovery had been pushed out to later in 2021. Sentiment was also impacted by the bizarre antics of retail traders in the US driving heavily shorted stocks to nonsensical heights in an attempt to inflict damage on hedge funds, an investment tactic that could only lead to misery for many of those involved.
More of the Same
by Richard Stutley, CFA
Quote: “just right, then, is a continuation of current policy and hence central bankers need to hold their nerve in the face of rising inflation and provide more of the same”
The tale of Goldilocks and the Three Bears was a popular analogy in markets in the years post the Great Financial Crisis, used to describe the global economy as not too hot, not too cold, but just right. Extending the idea to today’s central bank policy: too hot would be embarking on helicopter money or large scale debt forgiveness; too cold would be abandoning tools like quantitative easing, possibly in response to criticism of QE’s role in fuelling asset price bubbles; just right, then, is a continuation of current policy and hence central bankers need to hold their nerve in the face of rising inflation and provide more of the same.
Market Snapshot
- Global equities rose 1.7% last week
- The US Senate acquitted former President Trump of incitement to insurrection
- Brent crude rose 5.2% last week to $62.4 a barrel
- Gold rose 0.6% to $1824.23 per ounce
To the moon – YOLO
by Lorenzo La Posta, CFA
Tuesday 26th January, it’s early morning here in the UK and still night in the US when Aurelio, a friend of mine, texts me.
Aurelio: “Dude, what is going on with Game Stop? Last week some people on Reddit said they were gonna shoot GME (ticker for Game Stop) to the moon, to $1000 per share! So, I bought a few at $45 on Friday…”
I had not heard anything about Game Stop, so I start by checking the share price: it closed at $77 yesterday, +285% in the past two weeks! Ok, something’s off. I spend a few minutes on r\ wallstreetbets to get a grasp of what apparently is suddenly becoming a coordinated action in one of the largest online communities. I see people yelling stuff like “Let’s get GME to the moon!”, “We own you, hedge funds!”, “HOLD TILL $1000 – AT LEAST” and loads of “YOLO” (i.e. you only live once). Some people are even posting screenshots of their six digit $-gains made over just a few days. I can get back to Aurelio now. He’s no investment expert, yet he’s smart enough to understand what’s going on.
Market Snapshot
- Global equities rose +4.2% last week
- Concern mounts after limited trials show the Oxford/AstraZeneca vaccine doesn’t protect against mild/moderate illness from the South African mutation
- Brent crude oil rose +6.2% to $59.3 a barrel
- Gold fell -1.8% to $1847.1 per ounce
Emerging Opportunities
by Stephen Nguyen, CFA
2020 witnessed some of the toughest challenges – be it social, economic or political – that most of us have ever experienced. Around this time 12 months ago, the Covid-19 pandemic was gathering momentum, particularly in Asia before it spread further afield, and soon enough the world went into lockdown. As we slowly emerge from the shadow of the pandemic thanks to vaccine breakthroughs, mobility and global economic growth should gradually increase. Emerging markets (EM), led by the Asian powerhouses (primarily China, South Korea and Taiwan), are likely to lead the recovery helped both by them being the engine of global growth but also having managed the pandemic better than peers. Emerging markets outperformed global developed equities in 2020 for the first time in three years: could this be a sign of things to come?
Market Snapshot
- Global equities fell -3.4% last week
- The IMF revised their global growth forecast for 2021 from 5.2% to 5.5%
- Brent crude rose 0.8% last week to $55.9 a barrel
- Gold fell -0.4% to $1847.65 per ounce
StoreREIT telling: three key elements
by Jackson Franks
For me writing has never been easy, in fact English was my least favourite subject at school. However, I enjoy a challenge and as I think about what to write this week, I take myself back to my English class at school to remind myself of what writing tricks I was once taught. What I remember most is how we were taught the basics of writing a story: each story must consist of a beginning – hooking the reader & setting the scene, a middle – a series of interesting and exciting events, and an end – tie up loose ends & satisfy the reader. As I wrote these characteristics down it suddenly looked very familiar. This is what we expect of and how we critique real estate managers. We look for the successful implementation of a story which follows the same characteristics; a beginning – raising capital & deployment, a middle – asset management initiatives, and an end – disposing of the asset(s) & redeployment of capital.
Market Snapshot
- Global equities rose 1.5% last week
- Joe Biden was inaugurated as the 46th US President
- Brent crude rose 0.6% last week to $55.4 a barrel
- Gold rose 1.5% to $1855.61 per ounce
An industry in constant evolution
by Robert White, CFA
It is generally accepted that 2020 saw changes in the way we use technology that are likely to persist even after the pandemic ends. Many changes to society and markets already appear self-evident today, and developing a full understanding of the implications will be important for active managers over the years to come. The Christmas break provided us with a chance to ponder more introspectively over the impact these changes may have on the investment management industry itself, and how best to serve our clients over long term. Much has been written on how society will change following the pandemic and there are several examples of interesting shifts in consumer trends. My favourite example – albeit admittedly very niche – has been the explosion of interest in the 1,500-year-old game of chess since the pandemic. Despite the success of The Queen’s Gambit on Netflix, who would have thought the game would become one of the fastest growing spectator sports on video streaming services such as Twitch.
Market Snapshot
- Global equities fell -1.4% last week
- President Trump became the first US President to be impeached for a second time
- Brent crude fell -1.6% ending the week at $55.1 a barrel
- Gold fell -1.1% to end the week at $1828.5 an ounce
Scotched eggs
by Alex Harvey, CFA
When I was a kid, the concept of wolves being dangerous, aggressive animals was instilled in me: they growl, they stalk, they kill. Yet, have you ever heard spine-tingling howls breaking through the night? It is primordially majestic. As I grew up, I found myself seeing wolves as fascinating, widely misunderstood creatures. I had to find my own pack.
Wolves work together to hunt for food, protect their territory and expand their reach. United they stand, divided they fall. Led by two alphas, they know they are only as strong as the weakest of them. Also, they have a set social structure and rules by which each wolf has its own function but everyone, including the alphas themselves, takes care of and raises the pups. It’s all about the team.
Market Snapshot
- Global equity markets returned -0.7% last week as lockdown measures escalate in key markets.
- The US is to begin administrating the Pfizer/BioNTech vaccine imminently as daily deaths top 3000.
- Brent crude oil rose +1.5% to $49.9 a barrel.
- Gold rose +0.1% to $1839.9 per ounce
A pack of wolves
by Lorenzo La Posta, CFA
When I was a kid, the concept of wolves being dangerous, aggressive animals was instilled in me: they growl, they stalk, they kill. Yet, have you ever heard spine-tingling howls breaking through the night? It is primordially majestic. As I grew up, I found myself seeing wolves as fascinating, widely misunderstood creatures. I had to find my own pack.
Wolves work together to hunt for food, protect their territory and expand their reach. United they stand, divided they fall. Led by two alphas, they know they are only as strong as the weakest of them. Also, they have a set social structure and rules by which each wolf has its own function but everyone, including the alphas themselves, takes care of and raises the pups. It’s all about the team.
Market Snapshot
- Global equities rose +1.5% last week on the back of further positive news regarding vaccine rollouts
- The UK becomes the first country to approve the Pfizer/BioNTech covid-19 vaccine, which will be rolled out this week
- Brent crude rose +2.2% ending the week at $49.3 a barrel
- Gold rose +2.9% to end the week at $1838.9 an ounce
