Investment Line: Market Update - November 2020
Investment Line is a regular investment bulletin produced by Mattioli Woods plc. The communication provides an update on funds, highlights some of the areas we are focusing on, and shares our thoughts on the issues of the day.
The positive news around the development of a vaccine for Covid-19 has had a predictable effect on markets. The news from Pfizer and then Moderna has made everyone feel there is finally a way out of this crisis and the obvious relief sent equities sharply higher. Coming quickly on the heels of the apparent resolution of the US Presidential election, this seemed like a potential game changer for investors. One consequence of the developments is the potential arrival of the much-heralded rotation from the growth to the value style. There have been many false dawns here, but the sell-off in technology names and dramatic advances in more value-focused areas such as energy and financials make this look like it could be the real deal. There is much to be excited about, though it has to be said that until we have a route out of the Covid-19 crisis, sustainable progress cannot be made. Clearly there are issues still to be resolved – the administration of the vaccine is a massive logistical challenge and it will probably be late spring/early summer 2021 before we are in a remotely normalised environment. What the news has done for equity investors is allow them to trust earnings estimates not so much for next year, which will be highly disrupted, but for 2022. This means that some faith in forecasting can be regained and analysts have something much more tangible upon which to make their calls. There is so much euphoria that has entered markets over the last few weeks that it is only right to consider less smooth outcomes. We could still face disruption from a contested US election result, however frivolous the objections from the President may seem, and the economic fallout from the rising infection numbers and lockdowns will be significant. Yes, we have had some good news and it has made us somewhat more optimistic about the medium term, but the next six months are still likely to present significant volatility and uncertainty. A vaccine that only protects a few (as will be the case for many months here in the UK) won’t see the economy back to normal.
We have mentioned previously that we have been carrying out significant work into a new Environmental thematic allocation (equity). The movement towards ESG investing, huge developments in green technology and the election of a new US President committed to addressing climate change all mean that there is an enormous amount of enthusiasm and momentum that has built up around the theme. The opportunities in the space are varied and not just focused on clean energy/decarbonisation, though these play an important part. Technology means that lots of other ‘sustainable economy’ ideas are now genuinely investable and incorporate waste, recycling and agricultural sectors too. Of course, any area appearing to be flavour of the month has to be approached with a degree of caution, and some of the valuations in the clean energy universe have become very rich over the last 12 months. Nonetheless, the range of accessible ideas is impressive and it feels as if the time is right to initiate positions. We are always keen to find themes we believe will prosper irrespective of the strength of global economic growth and this will join a focused selection of such ideas in portfolios. The case is sufficiently strong for us to do so for investors across much of the risk spectrum, though as usual the nature of vehicles used will be tailored to fit with client appetite for risk.
Investment Line is written and edited by members of the Mattioli Woods Group investment committee and is for information purposes. It is not intended to be an invitation to buy, or act upon the comments made, and all/any investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances. The value of investments and the income from them can go down as well as up, and you may not get back the amount invested. Past performance is not a guide to future returns. Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.