Global Investment Commentary

For Professional Clients only. Not for distribution to or to be relied upon by Retail Clients.

December 2020

Most will welcome the end of a year which has brought significant social and economic disruption, worldwide protests, a new US president, mass cancellation of events, home working and wearing a mask becoming the norm.

The US election result and positive news on Covid-19 vaccines helped equity markets rally during the last quarter of 2020 for the third consecutive quarter, significantly outperforming fixed income. Value stocks rose by more than 15% and had their best quarter since 2009. Growth equities gained 11.26%, underperforming over the quarter, but still finished the year ahead by some margin.

Market Round Up
Performance of major equity markets during December 2020:

UK (FTSE 100)+3.28%
US (S&P 500)+3.84%
Europe (MSCI Europe Ex UK)+2.01%
Asia (MSCI Asia Pac Ex Japan)+5.29%
Japan (Nikkei 225)+3.95%
China (SSE Composite)+2.40%

UK
There was another shock for the UK high street in December with Philip Green’s empire Arcadia appointing administrators and putting a reported 13,000 retail jobs at risk. The future of stores within the group including Debenhams, Topshop, Dorothy Perkins and Burton is in question as Deloitte, the administrators, search for buyers and pressure mounts on Mr Green to plug the Arcadia pensions gap himself.

UK house prices grew at the fastest rate since 2016 as buyers try to beat the stamp duty holiday and whilst the second lockdown caused UK business activity to contract sharply the Purchasing Managers Index (PMI) for services did not fall as low as analysts feared. November’s reading of 47.6 still demonstrates contraction but was higher than the estimated 45.8.
The Bank of England announced that it would expand its asset purchase facility by a further £150 billion, and the quarter ended with an eleventh-hour Brexit deal finally being agreed, helping the pound rise in value by 6% since the beginning of October.

Michael Saunders, Bank of England (BoE) policymaker, said this month: “In my view, there may be some modest scope to cut bank rate further but, if we do, it may be preferable to move in relatively small steps”. This as the BoE review the feasibility of taking its benchmark rate negative from the current 0.1% with the central bank expecting a recovery to pre-pandemic levels not to materialise until 2022.

US
US stocks reacted positively to the election result, which contributed to the 11.10% climb for the quarter. December saw the US Supreme Court reject a request by Pennsylvania Republicans to undo the certification of Joe Biden’s victory in the state signalling that Donald Trump’s efforts to overturn the election through litigation have now come to an end.

The prospect of a less confrontational presidency under Joe Biden has pleased the markets. The Democrats still have a shot at completing a blue wave if they manage to win the final Senate seat in Georgia in the run-off election, which would give them a narrow majority. US growth stocks, which have benefited from the shift to online trade caused by Covid-19 this year, underperformed for the quarter after the positive vaccine news.
The last days of the year brought long-awaited relief for pandemic-stricken companies and households. US lawmakers in Congress finally agreed on a pandemic relief plan that will extend many support measures, including renewing direct payments to households and more generous unemployment benefits. Consumer spending was potentially at risk without further government support, making this an important step for the US economy in building a fiscal bridge to the other side of the pandemic.

Europe
The second wave of coronavirus infections and further lockdown restrictions poses ‘a considerable risk’ to the Eurozone economy the International Monetary Fund have warned. Further asset purchases and continuation of cheap loans for banks are being used to try to support the economy. There was a glimmer of hope however with Germany’s factory orders reaching pre-pandemic levels back in February of last year.
On the monetary policy front, the European Central Bank (ECB) increased the size of its planned asset purchases by EUR 500 billion to EUR 1,850 billion and extended the horizon over which it will make these purchases by nine months to the end of March 2022. The caveat was added that purchases can be terminated early, if no longer needed, or extended, if needed. Less of a headline but still important was the fact that the ECB asked banks to limit dividend payments until September 2021 to support the stability of the financial system.

While the words ‘Brexit agreement’ finally brings a feeling of positivity, as always, the devil will be in the detail. With too much to cover in this forum, the implications to cross channel trade, financial services, fishing rights, customs, aviation and trucking, energy et al, will no doubt become apparent in the coming weeks and months.

Conclusion
Performance of major equity markets 2020:

UK (FTSE 100)-11.55%
US (S&P 500)+18.40%
Europe (MSCI Europe Ex UK)+2.10%
Asia (MSCI Asia Pac Ex Japan)+19.06%
Japan (Nikkei 225)+18.26%
China (SSE Composite)+13.87%

The first quarter of 2021 is likely to remain challenging for the global economy. Disappointing economic data is likely to coincide with continued pandemic-related restrictions. So far, the market has broadly been willing to look through the near-term weakness thanks to the vaccine news and policy support measures, but any disappointment on the vaccine front could lead to increased market volatility.

Investment managers generally will have to work hard to make sure their portfolios are positioned sensibly. More than ever, the emphasis will have to be on identifying the regions, sectors and companies that have the strongest underappreciated growth prospects.

Despite many, if not all, of the unknown outcomes mentioned in previous commentaries now being known, there are still uncertainties. Although an end to the Covid-19 crisis may appear to be in sight, the path to recovery may still be bumpy over the coming quarters.

Risk Warnings
The following is a summary only of some key items in the Prospectus.
Capital is at risk. Investors in Protected Cell Company (PCC) must have the financial expertise and willingness to accept the risks inherent in this investment.
Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.
The Master funds will be exposed to stock markets. Stock market prices can move irrationally and be affected unpredictably by diverse factors, including political and economic events.
It should be appreciated that the value of Shares is not guaranteed and may go down as well as up and that investors may not receive, on redemption of their Shares, the amount that they originally invested.
Investment in the Company should only be undertaken as part of a diversified investment portfolio.
Investment in the Shares should be viewed as a medium to long term investment.
Shares may not be redeemed otherwise than on any Dealing Day.
There will not be any secondary market in the shares of the Company.

Regulatory Information
This material is for distribution to professional clients only and should not be distributed to or relied upon by any other persons. The Cells referred to are a cell of Marlborough International Fund PCC Limited (the ‘Company’), a protected cell company incorporated in Guernsey and authorised as a Class B Collective Investment Scheme under the terms of the Protection of Investors (Bailiwick of Guernsey) law, 1987, as amended. Investment may only be made on the basis of the current Prospectus, this can be found on the website www.marlboroughinternational.gg.
Marlborough International Management Limited is incorporated in Guernsey. Registration No. 27895.
Regulated by the Guernsey Financial Services Commission. It is not protected by any investor compensation scheme.
Licensed under The Protection of Investors (Bailiwick of Guernsey) Law 1987. Guernsey Office: Town Mills South, La Rue du Pre, St Peter Port, Guernsey GY1 3HZ. Tel: +44(0)1204 589336.