Miss Berry started back this week as the new year 6 teacher and old as I am, the anticipation of a new school year is still something I remember with fondness.
It therefore seems opportune to write a ‘back to school’ blog, summarising a little of what is happened over the summer and looking at potentially what is to come for the rest of this uniquely challenging year.
It goes without saying that everything continues to be dominated by the virus. The debate is in full swing about what happened, is happening and will happen.
But if we look at how things are currently then it is mostly manageable to potentially promising.
Infection rates have gone up, in some areas substantially, as plainly was going to happen post lockdown, but has not followed through in the main to a significant rise in ICU cases. This can possibly be attributed to improvements in treatment protocols and/or changes in the virus itself.
A question, as yet unanswered, is why the initial infection period (February to May) was quite so horrific when those more recently infected seem to be experiencing less severe outcomes. Was it that infection rates were initially far higher than realised as was argued by Imperial College, or that younger, fitter people are far better able to deal with the virus and a higher proportion of the more recently infected?
Certainly, the U.S has suffered far greater issues than say Germany or South Korea, and this could in part be due to the average overall health of the respective populations. In July, US states such as Florida, Arizona and Texas refused to mandate masks were worn, arguing it an infringement to civil liberty. They then suffered massive infection spikes.
A restaurant in the UK had a sign outside around this time, saying that to enter “all Americans would need to be accompanied by a responsible adult”.
It is now being contended by some, including Barry Norris of Argonaut, that the level of economic restrictions are a massive overreaction as things now stand to the severity of the medical threat posed. He argues that the virus, if viewed from today, is simply not the threat thought initially and the continued severity of mitigation measures is to a large extent due to the political resistance in admitting this. It is certainly true that Sweden, which did not lock down, is not experiencing fatalities; their infection rates also are way down, and they appear to have possibly moved into the fabled herd immunity zone.
What is certainly true is that the virus continues to confound and confuse with clear, consistent answers proving hard to identify.
The medical news continues to be positive and promising.
On the vaccine front Moderna, Oxford/Astra Zeneca, Johnson & Johnson and others, are all in large 3rd stage trials and importantly manufacturing their drugs at scale to enable distribution immediately they receive approval. In total, globally, over 100 potential vaccines are in trials, most will fail but only one need work.
Therapeutic treatments have advanced significantly including the use of readily available steroids which have proved highly effective (Dexamethasone), anti-clotting medications (fondaparinux), blood plasma and the new drug Remdesivir from Gilead.
Additionally, new tests are very shortly to become available from AbbVie, Abbott Laboratories and Roche which give accurate 5-minute confirmation of whether someone is carrying the infection (a COVID home pregnancy test in effect). This should help the return to offices, air travel etc and the technology behind these tests will only get faster over time.
What is yet to be seen is an equivalent antibody test. Such a test will tell if a person has had the virus and importantly if they now carry antibodies (immunity). When this does become available outside of a lab it will be of great help and reassurance to many.
George has prepared figures for the portfolios for the year to date to 31st August which are included below.
|1 Jan – 19 March 2020||1 Jan – 31 August 2020||12 months to 31 August||3 years to 31 August|
|Moderately Adventurous Portfolio||-29.16%||+0.67%||+7.02%||+15.99%|
|Positive Impact Portfolio||-21.76%||+3.81%||+11.01%||+24.18%|
Note: Past performance is no guide to future performance and investments can fall as well as rise.
We usually try to avoid focusing on short-term performance stats simply because either very good or very bad, they are not indicative of long-term outperformance, which is our focus.
However, these are not normal times and it is therefore important to give investors all the facts in real time, to hopefully reassure them that their funds have both weathered the recent storms and are now again progressing upwards in value.
Some things to watch
Firstly, it goes without saying that the short-term investment future will be dictated by COVID. But it is vital to focus on the reality that we appear to be through the worst and that within 3-6 months a vaccine is likely available.
Secondly, the two big political/economic events coming up are the US Presidential Election in November and the BREXIT negotiation cliff in December. Our views on both remain as previously.
We think Biden wins. We think it will not be a net negative for markets and we like the choice of the moderate Kamala Harris as VP.
If Trump does win markets will go up and Nic will need to be sedated.
We think that some BREXIT deal is likely done at the 11th hour but the huge flux post COVID has probably made a no deal easier, simply because much greater political cover now exists. A lot can and will be blamed on COVID.
Thirdly, the US market is leading the way higher as it has for a decade, but this headline hides the narrowness of what is causing this.
The QQQ index which is the 100 largest companies in the NASDAQ (technology index including Apple, Tesla, Amazon etc) is up 37% year to date.
However, if you ‘even weight’ (this means counting every company as the same size) the whole S&P 500 index for the year, it is down 5%. So, as we have been saying since COVID kicked off, it’s tech and healthcare that will be going up because they are virus immune and they really have.
There are some technology company valuations though which now just look crazily high. The poster boy for this is Elon Musk and Tesla, which is up 500% year to date.
This appears to be a classic behaviour of a ‘bubble’ known as ‘The Greater Fool’.
Someone buying a stock has no idea of its correct or reasonable value but has observed the share price on a parabolic ascent and so believes they can buy it, then someone can be relied upon to buy it off them at an even higher price (a greater fool). This NEVER ends well for those left in, but people can make a ton of money if they exit before the music stops.
Fourthly, we are now of the opinion that the best opportunities going forward for gains are no longer primarily in technology in the short-term. We think better returns are likely in the economically sensitive stocks which will benefit from a return to normality, increased confidence, and spending. Many have depressed valuations currently which certainly cannot be said of the technology sector.
We like Asia, we like Japan and we think Europe offers value as well (yes you read that right, we like Europe’s stocks).
Often the best investments are those which have value, but nobody currently likes. This too shall pass, and they will be liked again.
This theory obviously does not apply to Piers Morgan or Jacob Rees Mogg.
Note: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.