For professional advisers only. Not to be relied upon by retail investors.
In a nutshell
Despite the murky economic and health backdrop, risk assets were generally on the front foot again. On a regional basis, (in GBP terms), Emerging Markets delivered the best returns, whilst Japanese equities performed poorly. GBP Sterling rallied significantly against the US Dollar, hurting the returns of overseas holdings. In bond land, sovereign yields did not change meaningfully, whilst credit spreads tightened.
Infection rates rise
July saw infection rates rise in most parts of the world, albeit from different levels. In the US, total new case growth rose and continued a similar trajectory as seen in June, although it stabilised a little at the end of the month. The story varies state by state, and since June the epicenter has shifted to the southern states. Whilst the hospitalisation rate remains high, the daily death toll has fallen, which could be a sign that treatment is improving and / or there is better protection of the elderly. In Europe and Japan new cases also rose, but from a much lower base. On the vaccine front, there were some positive early-stage trials from Oxford University and AstraZeneca. However, they cautioned that the development of vaccine would be unlikely before Christmas.
At present there remains great uncertainty over the future path of the virus, and a vaccine is still a distant prospect. Until then, policy makers in developed countries will have to continue to walk the tight rope of trying to reboot their economies without generating a ‘second wave’ of infections. And for policy makers in many developing economies, the task of containment needs to be weighed against the risk of lasting economic damage.
Economic picture uncertain
Economic data releases in July again showed a mixed picture. US GDP in the second quarter fell compared with the first quarter. Initial jobless claims remain high and the recovery appears to have stalled. July’s consumer confidence reading fell also, and small business revenue is still 20% below pre-covid levels. On the positive side, US retail sales have increased by 27% since their low in April and are not far off their pre-covid levels. Consumer balance sheets remain healthy, and incomes have been well protected by government support. Congress is currently negotiating another stimulus bill that could see additional stimulus cheques as well as an extension to existing unemployment benefits. In Europe, the GDP readings were similarly dire, however a EUR 750 billion recovery fund was agreed to by the European Union (EU). This recovery fund will be backed by common bond issuance by the European Commission, which could help accelerate the process of fiscal integration across the EU.
Multi Manager Team Views
We have been engaging with our fund managers extensively during this period to better understand the risks and opportunities going forwards and stand ready to take advantage of future volatility. We continue to look to manage our portfolios through the inevitable market ups and downs to deliver a smoother investment journey for our clients.
For professional advisers only. Not to be relied upon by retail investors. The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future results. Personal opinions may change and should not be seen as advice or a recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: August 2020. CAM0100067.