The following chart, showing returns in local currency, illustrates the strength of the market rebound but also how divergent it has been. Wall Street has produced positive returns for investors even in this cursed year, courtesy of its 30% weighting in the rampant technology sector, showing that sector composition has been a more important driver of markets than geography. The beleaguered FTSE has had an absolute shocker with its high weighting in ‘old economy’ energy, industrials and banks and burdened by Brexit and the UK’s poor response to the pandemic. Europe too has lagged, also held back by a lack of growth companies in its stock market composition. In aggregate, global markets appear to be pricing in a fairly robust economic recovery and a manageable second wave of infections, which gives room for disappointment.

The table shows returns broken down by asset class and geography but this time in sterling, which has been a boost for overseas markets as sterling remains the weakest of the major currencies, noticeably against the euro and yen.

With the Royal Institute of Chartered Surveyors removing the ‘material uncertainty’ clause from most UK commercial property valuations, the door to re-opening the daily dealt bricks and mortar funds is being unlocked, if not yet fully opened. The funds with high cash levels of around 20% have indicated their desire to re-open though, for those with lower cash levels, such as M&G, the wait will go on. There will be much scrutiny as to whether valuations are lowered on re-opening and whether existing holders rush for the exits. Safe haven gold broke through the US$2,000/oz barrier for the first time in August as the dollar weakened and real interest rates remained firmly in negative territory before falling sharply back towards US$1850/oz, illustrating that it is a volatile asset class, not a one-way bet.  Oil marked time around US$40/bl and upside remains limited in the face of weak demand and high stockpiles.   

The following table, with data courtesy of the JPM Asset Management Weekly Brief on September 28th, shows the winners and losers in terms of industrial sector and style:

Big winners and losers here. The share prices of growth companies that will survive and ultimately thrive in the new environment, predominantly in technology and healthcare, have been rewarded with strong recoveries in their share prices. If you’re scratching your head about consumer discretionary then the answer is that half the sector is made up of online retailing, Amazon in other words! The market is continuing to penalise ‘value’ companies whose business models are weaker and in more economically sensitive sectors such as banks, energy, industrials, retail and travel. There are bouts of heavy profit-taking in tech and the odd short-lived revival in the value squad but until a sustained recovery in global growth looks likely, and with it rising interest rates and bond yields, growth looks set to continue its decade long dominance over value.

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