Global Equities showed a strong performance over April 2021, the FTSE ALL World Index registering a gain of 5.26%over the month (to 30th April) in local currency and 4.88% in sterling adjusted terms. The UK, (both broad and narrow indices), Continental Europe, Japan, and emerging markets underperformed, while the USA, especially NASDAQ beat the world average. . European indices and the S&P lead this year’s gains, in local currency while China, one of the 2020-star performers has shown barely any year-to-date movement. The VIX index, ended the month at 18.53, a monthly fall of 4.6% and is now about 19% lower than the year end level.
Gilt prices rose slightly during the month, the UK 10-year yield for instance finishing the month at 0.84%. Other ten-year government bond prices also showed marginal gains with closing ten-year yields of 1.63%-0.2% and 0.09% in USA, Germany, and Japan respectively. All the followed core preference shares have significantly outperformed core government stocks in capital and income terms over the year to date and are still recommended if seeking fixed interest exposure with annual yields in the 5.3%-6% area or 10.3% for the more speculative idea.
The graph below illustrates a possible supply issue if tapering coincided with a diminution of overseas appetite for UK gilts and UK institutional preference for equities, infrastructure, property
Check my recommendations in preference shares (note recent FCA/Aviva “apology”), corporate bonds, floating rate bonds,zero-coupons, speculative high yield etc. A list of my top thirty income ideas from over 10 different asset classes is also available to subscribers.
The US dollar weakened in April against all major currencies, the Federal Reserve’s dovish statements seemingly carrying more weight than the stronger economic growth statistics. The pound moved within a relatively tight monthly range, while maintaining year to date strength versus the US Dollar, Japanese Yen, and the Euro. Sterling adjusted equity indices show US and European shares considerably outperforming Japan over the four-month period, the latter index return suffering significantly from sterling’s 7.7% rise the Japanese Yen
A generally positive month for commodities, with many double figure percentage price gains. Gold recovered a little after recent declines though still down 6.7% since the year-end while silver, platinum and palladium registered larger monthly gains with additional industrial demand. Oil steadied somewhat after recent OPEC, Suez Canal, and other geo-political developments, while copper climbed briefly to a new high, moving above$10000 for the first time in a decade. Iron ore benefitted from particularly strong Chinese demand. Amongst the “softs” wheat and corn rose 21.5% and 30.2% respectively, partially on supply issues. Over the year so far commodities have generally been strong with many gains over20%. Gold is the notable exception.
Notwithstanding the large human toll and uncertainly still posed by Covid-19 (lockdowns, geographical variations, vaccines) there is growing optimism regarding the course of the global economy.
Central banks continue to adopt an easy money policy, supplemented by other measures while Governments provide increasing short- and long-term fiscal support.
However, both supports will inevitably be questioned/reversed as and when the pandemic eases, and investors will have to assess the impact on various asset classes.
For equities, the two medium term key questions will be whether/if rising interest rates eventually cause equity derating/fund flow switches, government, corporate and household problems, and how the rate of corporate earnings growth develops after the initial snapback.
Following the format of last month, I make the following observations.
• SECTORS-The dramatic change in equity confidence, from early November, largely because of the Biden election victory and vaccine announcements prompted large sector/style changes with new focus on value, cyclicals expected to benefit from sharper economic growth. This trend has continued with previously unloved sectors such as oil, banks, property, and selected retailers showing above average growth. At this time of writing, the first quarter results season is in full swing and of course forward-looking statements are becoming more important than historic results. The two trends I have noticed so far are firstly the significant out performance of actual earnings figures versus predicted, and secondly the rather luck lustre share price reactions of some of the more defensive/WFH names even when the figures surprised upwards eg Microsoft. On the other hand, banks, especially previously unloved European, including UK, names have tended to perform very positively, a theme also apparent with other cyclical “value” plays
• AS further statistical confirmation of the above, the divergence between my high and low risk COVID stock baskets remains high as more favourable vaccine news and economic upgrades (especially USA), have emerged. Since the 6th of November turning point, the weekend of the first significant vaccine announcement and the US election, the benchmark FTSE 100, S&P and NASDAQ have all risen approximately 18%.My “balanced” basket, broadly indicative of client portfolios managed has gained about 28%.Meanwhile,over the same period, many of the “higher risk” usual suspects, IAG, Carnival, EasyJet, Cineworld and Gym Group etc have risen on average by close to 70%,although still down on pre-pandemic 2019 high prices. Conversely the defensive basket is barely showing any growth at all (+5% on average), and many WFH stocks have actually declined in absolute terms e.g Netflix,Peleton,Regeneron etc