Our new portfolios are positioned for the next phase.

Edition 33 – New Portfolio Selections

We are publishing the new Edition 33 of the Estate Capital investment portfolios tomorrow and sending clients either through our new portal, by email or by post our rebalance request. We fully recommend that clients take up the offer of moving their portfolios into the updated versions.

These new portfolios are designed for the current economic dynamics. We have removed some sectors such as property funds and enhanced our holdings in tech stock. We have reduced our exposure to high yield bonds and moved our fixed interest allocations to investment grade credit and UK and UK government bonds. This provides our portfolios with the opportunity to participate in growth sectors as well as secure greater downside protection.

We are taking a cautious stance with our new portfolios as we think we have seen the best of the coronavirus crisis recovery but a recession and heavy unemployment is looming. Despite these concerns the stock market has continued to perform well. The US S&P 500 finished Q2 2020 with the best return in US markets since 1998, rising over 18% in the quarter alone. This of course comes after the worst quarter since the financial crisis but is a remarkable reminder of the journey financial markets have taken in a relatively short timeframe.

The latest Covid-19 news from the US was not encouraging with Florida and Arizona seeing sizeable increases in new case growth as the weekend reporting lag caught up. Arizona is taking steps to impose lockdowns on some higher risk facilities such as bars and gyms, which is expected to help slow the virus. Whilst US new case growth remains elevated; this is still yet to follow through to significantly higher fatalities. This suggests that either the healthcare system is getting better at dealing with Covid-19, or the demographics of those being infected is changing. The truth probably lies in a combination of these factors, but if fatalities remain under broad control this gives US States far more flexibility in the balance between the human and economic cost.

There have been signs on both sides of the Atlantic that central bankers have been positively surprised by the speed of the economic recovery. Federal Reserve Chair, Jerome Powell spoke at the House Financial Services Committee and noted that the return of economic activity occurred “sooner than expected.” There was a note of caution that normality was predicated on consumers feeling comfortable enough to return to their old patterns of activity. This is clearly a big question mark until a vaccine is found as there will be some degree of social distancing in place either formally or via consumer caution as long as the virus remains in circulation. Bank of England chief economist Andy Haldane said that “positive news on demand has, in my opinion, more than counterbalanced the rise in downside risks to employment.” Markets will be watching closely as if it implies central banks may not continue to increase their quantitative easing programmes due to these improvements.

If we see a pick-up in US fatalities, sentiment could turn quickly and cause a re-rating of risk assets. Equally if the US is able to keep the economy largely open whilst still keeping hotspots under control, the markets should continue the Q2 rally.

We are expecting a long and bumpy road to full recovery, one that is supported by large government and central bank stimulus. So far markets have responded to the massive cash injection into the economy and that spikes and local lockdown may not impact the general improvement. However, a large scale second wave would be a concern and we have positioned portfolios to address this.

Please return your rebalance requests to us as soon as you can and we will act on your instruction.

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