APRIL 2021 MARKET UPDATE
March saw global equities take a dip mainly due to the rise in bond yields.
Global bond yields have been at record levels for some time, many providing a negative yield: if investors hold them until maturity they are certain to incur a loss of capital, never mind the loss in real terms after the effects of inflation.
We believe the 30+ year bull market in bonds is over. After having been subdued for such a long time, inflation is rising and may once again become the overarching significant threat to investors that it has traditionally been in the past.
The amount of money that has been pumped into economies in the past year by both Governments and central banks has been finding its way into asset prices and individual’s bank accounts. Therefore demand has remained high in many areas. At the same time however, production of many goods has been restricted as factories have been closed and supply chains disrupted due to the coronavirus lockdowns.
Finally food prices, having fallen for many years due to a number of factors, not least unsustainable farming practices, are now rising.
History shows that whilst being one of the few assets that can shield investors from inflation, in the initial stages of a significant rise in inflation equity markets fall significantly.
Competition for investors capital between asset classes is governed by the returns available. For some time cash has offered virtually no return and so a lot of that money has gone into bonds and equities.
As interest rates rise so does the attraction of bank deposits compared to equity dividends and so investors sell them and turn to cash. When one considers the current nosebleed valuation of those companies that have been labelled as unstoppable growth stocks such as the FANGS, then any hint of interest rate rises over and above those currently expected will result in those valuations compressing dramatically.
Finally we have just now completed the changes to the model portfolios we manage for you.
Previously when you logged onto your account with Elevation you saw a list of the individual funds that made up your portfolio. While we have successfully been able to generate good returns for you with this method, it has occasioned some difficulties in the management of your portfolio due to having investors split across different platforms.
Those various platforms have different funds available for investment which has meant that on occasion we have not been able to select the preferred investments for some of you and have been required to find substitutes, often at considerably higher expense. This was limiting our ability to invest in the full range of available investments, such as into direct equities or into exchange traded funds (ETFs. – these are extremely cheap tracker funds that follow a particular benchmark – the FTSE100 for example).
Now you will see two funds: VT Blackwood Prime and VT Blackwood Keystone. Your portfolios have transitioned to holding a mixture of cash and these two funds, with the split between the three reflecting your risk profile. We reiterate that your risk profile has not been affected by this transition.
These two funds are fully transparent. We will continue to provide monthly factsheets of all your investments and the underlying holdings of the funds will be made available monthly to the various data providers (such as Morningstar and FE Trustnet).
The advantage for us as investment managers and consequently you as investors is that we are no longer limited to investing just in the funds that are available on whichever platform you use.
Prime and Keystone will help us to reduce costs and improve performance and consistency for you and therefore we are delighted to make this transition.