Welcome to another weekly bulletin.
This week the latest updates to client portfolios are explained. We also have some interesting data showing that popularity of many world leaders is soaring, whilst we have spotted a curious trend in ethical investments which are currently outperforming their conventional peers.
Client Portfolios Adjusted and Rebalanced
This week a round of portfolio adjustments and rebalances took place for all clients invested in our Tatton investment portfolios. The changes were measured and modest, with a small increase in exposure to equities, specifically to emerging markets. This was funded by selling off some holdings in corporate and government bonds. Other equity positions remain relatively neutral, with no further moves to increase our exposure to the UK stock market for the time being.
Investment risks and potential for volatility remain due to the continued uncertainty over how economic activity will resume. Dividends on shares and coupons on bonds are currently low and not expected to rise much in the medium-term. It remains an uncomfortable time for investors with the income element of investment returns historically low. Further market falls are quite possible before a prolonged recovery takes place.
The policy responses of governments and central banks however continue to evolve. They remain committed to supporting businesses and the economy at large in the event of further stress events. For the time being there is limited ability for it to become economic activity, as it is having to be stored whilst lockdown measures persist. At some point however it should begin to make itself known as global economies return to work.
It is still expected that if the bullish scenario for the global economy plays out, emerging markets with the greatest exposure to China will benefit. China may not be allowed to regain the dominance it achieved in globalised goods, however, it has higher potential growth and more capacity than any other large economy to expand its domestic demand. Looking further out, the positive dynamic should lead to better return expectations. However, it seems prudent to wait for economies to catch up with markets before another step up in portfolio risk.
Soaring Popularity of World Leaders
In business it is sometimes said that ‘all PR is good PR’. Whilst I am not sure I subscribe to this belief, political capital can certainly be gained from the effective handling of a crisis. This is proving to be true of the Coronavirus pandemic, which appears to have been good for the popularity of many world leaders. Data published by global technology company Morning Consult shows a dramatic surge in approval for many heads of state in the wake of the Covid-19 outbreak.
During the recent UK elections we found ourselves glued to the voter intention polls on the YouGov website on a daily basis, as politics is inevitably a key aspect of financial planning. As the main political parties found their support waxing and waning throughout the campaign, one thing that remained a constant - the divisive nature of Boris Johnson. It’s hard to recall a more ‘marmite’ British politician in modern times and people seem to view Boris as either a gaff-prone bumbling toff, or a patriotic political genius in equal measure. Data suggests this was still the case until mid-March, which proved a major tipping point. Whether you agree with his politics or not, Boris has certainly led from the front during the crisis and sought to rally the British public. Even his shock diagnosis with the virus and subsequent battle back to good health seems to have been turned into a PR master stroke that has further buoyed public support.
Leaders of other nations such as Germany, Australia and Canada have also seen their ratings soar, whilst even embattled French President Emmanuel Macron – often perceived as one of the most unpopular men in politics – appears to have benefitted from his handling of the crisis. Whether the trend continues of course will depend on how the pandemic evolves, the cost to life and the damage (and subsequent recovery) to world economies. For now at least however, many world leaders seem to be enjoying a purple patch in a time of crisis.
Ethical Investors Taking the Lead
Last week I wrote about the incredible positive impact that social isolation and lockdown measures are having on pollution levels around the globe. Investors with an ethical agenda now have another reason for cheer, as compelling data is beginning to emerge showing the outperformance of ethical investment portfolios during the Coronavirus crisis to date.
Ethical investment portfolios have been around for some time. Historically they were relatively simplistic, applying a process of negative screening to eschew investing into sectors such as oil, arms and tobacco. In more recent years however ethical investing – also known as ‘ESG’ - has become more sophisticated. In addition to avoiding morally dubious industries such as those above, modern ethical portfolios seek to positively identify companies that engage in activities that make a positive contribution towards the environment, society and responsible corporate governance. Many of these types of companies are modern, tech-focussed businesses, that have adapted easily to remote working during social distancing. A lack of exposure to fossil fuel producers meanwhile has left them largely unscathed by the tumbling oil prices.
To look at this in practice, consider one of our most popular portfolios as an example. Our data shows that the Tatton Core Balanced portfolio – which has no specific ethical agenda - has performed well during the recent stock market volatility. Despite the large falls in markets in February and March, the 12 month performance of the fund is currently sitting at -3.30%. So only a relatively small drop compared to global stock market movements. By comparison however, the Tatton Ethical Balanced portfolio is actually up 1.76% over the same period. This equates to a massive 5% performance differential over a 12 month period. We are seeing similar trends across the other portfolios in our range; Defensive, Cautious, Active, Aggressive and Global Equity.
Now I am not suggesting that we suddenly reposition everyone’s pensions and investments into an ethical portfolio purely off the back of a single year’s performance. The usual adage applies – past performance is not a guide to future performance. However, it seems that for those not already doing so, there has never been a better time to look again at investing with an ethical agenda and considering whether it is right for you.
