GLOBAL EQUITIES
Equity markets have continued to perform strongly which is pleasing, given our recent decision to add (modestly) to risk. We were always going to do this in a measured way and this also feels right given the level to which some markets have now risen. Concerns have started to emerge over the rise in Covid-19 cases in several countries, plus the possibility that even extensive vaccination programmes may not be able to prevent further waves given the possibility of new variants emerging. It feels as if the bond markets are far from finished with causing problems for equities and this adds to our approach, which remains more cautious than that of some peers, despite recent changes. Selective addition of risk amongst niche opportunities would seem to be the way forward, rather than an indiscriminate chasing of risk assets, many of which have enjoyed an extremely good run of late.
INDIA
We have been enthusiastic about the Indian growth story for some time but have continued to highlight some of the challenges facing the country. The pandemic has brought some of these issues to the fore as well as providing additional problems of a unique nature. India is seeing infection rates soar amid a new wave of the virus and a new variant has indeed emerged there, placing other countries on alert. The Indian Government has been accused of being deficient in its response and even irresponsible in allowing large political rallies at such a time. The rupee has gone from being the only emerging market currency to gain against the dollar over the first quarter of the year to now being a serious laggard. Overseas investors are clearly concerned at developments and are moving to reduce positions in Indian assets. Interestingly, shares in the country’s banks have now come under pressure as default fears surface following the imposition of local lockdowns. The strong economic recovery which looked likely is now under threat and at the very least the rate of credit growth at financial institutions is likely to hold the country back. We have had significant holdings in India as confirmed believers in the story, but have been looking at our exposure and have made some reductions to holdings in some portfolios, in favour of what we think will be better growth opportunities short term.
ALTERNATIVES
We have held a range of alternative strategies in portfolios for some time. Given the problem of diversification in a world of ultra-low interest rates and expensive bond markets, it has been necessary to look for additional ideas to bolster more conventional exposure. It is fair to say that many of these have been disappointing over the last few years. Absolute return vehicles have attracted a significant amount of negative press coverage after poor performance and some of the managed futures vehicles – for which there is a strong academic case in portfolios – have shown an unpredictability in volatile market conditions and reduced our conviction. These issues have led us to carry out an extensive review of the space and we anticipate changes in the coming months. There have been many protective assets and hedging vehicles which have proved their ability to deliver across the market cycle and we are reconsidering how best to approach the alternatives arena. Watch this space!
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.
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