The third quarter emphasised the benefits of geographic diversification. Asian equities returned over 10% and are the joint best-performing equity region year to date, up over 5%. Meanwhile, UK equities fell 3% and are down 20% year to date. European equities also lagged the rest of the world, with returns of 2% and -7% for the quarter and year to date respectively. US equities delivered nearly 9% over the quarter and over 5% this year.
Asia’s strong performance has been helped by China’s remarkable success in containing the virus. This has allowed subway usage in China’s major cities to recover to only 10% below 2019 levels, compared with tube use in London, which remained down more than 60% even before the latest work-from-home measures were announced.
In the US, the summer started with a sharp rise in the number of people in hospital with Covid-19, but since late July that number has declined sharply, perhaps helped by increased use of face masks. In Europe and the UK, hospitalisations have been very low for most of the summer, but have started to creep up, with Spain and then France and the UK seeing a rise in cases. This has prompted concerns that, as summer turns to autumn and temperatures drop, hospitalisations and deaths could start to rise more meaningfully. (source)
Long Only Funds
| Rank | Company | Fund Name | September ’20 | YTD | CAGR | 3 Years | AUM (Million $) |
|---|
(Criteria used: Track Record > 1 Year, Currency: $US dollar, AUM > $100m)
ETFs
| Rank | Company | Fund Name | September ’20 | YTD | CAGR | 3 Years | AUM (Million $) |
|---|
(Criteria used: Track Record > 1 Year, Currency: $US dollar, AUM > $100m)
UCITS Funds
| Rank | Company | Fund Name | September ’20 | YTD | CAGR | 3 Years | AUM (Million $) |
|---|
(Criteria used: Track Record > 1 Year, Currency: $US dollar, AUM > $100m)
There was a meaningful move lower in sterling in September (down 3% against the dollar). A lack of progress in the Brexit negotiations is the most likely explanation. Discussions have been complicated by the UK government’s placing of the Internal Market Bill before parliament. This bill seeks to modify the terms of trade between the UK and Northern Ireland that had been enshrined in the EU withdrawal agreement.
We still think the most likely scenario is a limited free trade agreement with considerable transition arrangements to ease the ‘day one’ burden of change. However, the risk of a more adverse scenario is rising (see Brexit OTMOI).
The prospect of no deal is also influencing expectations of Bank of England policy. The Bank is currently reluctant to fully endorse a shift to negative interest rates, but market pricing suggests negative interest rates will be introduced at some point in 2021. Ten-year Gilt yields ended the quarter at 0.25%, up slightly over the quarter but down from 0.8% at the start of the year.
The final quarter of the year could be particularly eventful. By January, we should know the outcome of the US election, whether a no-deal Brexit was avoided and whether US Congress has passed more fiscal stimulus. Most importantly, there is a good chance that we will get news on a vaccine. For now, we continue to believe the focus should be on diversification, both regionally and by asset class, with alternative and targeted absolute return strategies playing an increasingly important role in portfolio diversification. However, we also think it’s worth considering what to buy if we get good news on a vaccine. (source)
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The Edgefolio team
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Disclaimer
Data provided by Morningstar. Care has been taken to ensure that the information is correct, but Edgefolio neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.