Last week the FTSE 100 index rocketed up 5.2%. This week, up to the close on Thursday night, it’s slumped 6.3% over fears of a second wave of Covid-19 cases and a worse economic contraction than imagined. The Vix index, measuring stock market volatility, has spiked again.
Today it was announced that the UK economy shrunk over 20% in April. It may be the largest monthly contraction on record but it’s hardly surprising. The lockdown was in force throughout the whole month of April and most people spent money on nothing more than essentials.
There should be an improvement in May data and again for the current month, as most shops are given the go-ahead to open. Of course, millions are furloughed and many more on reduced income, so a return to spending at previous levels isn’t immediately obvious. A technical recession, two quarters of negative GDP growth, is imminent.
In light of the economic uncertainty, we continue to carefully analyse the companies we invest in. Businesses have battened down the hatches cancelling dividends, increasing cash levels, freezing Board and executive level salaries and delaying bonuses. These measures are important to ensure survival and readiness to react when the pandemic eases. We’ve found good opportunities to top up existing holdings and to initiate new positions. In some of our investments, we’ve used the recent market rally to take profits.
Over this up-and-down two-week period the FTSE 100 index is actually flat, with a total return of just 0.1%. The US market has been down over the same two weeks, falling 1.3%. Your Courtiers funds have fared well and been defensive with each of Total Return Cautious Risk, Total Return Balanced Risk and Total Return Growth slightly outperforming the FTSE 100.
During May, each of the three Courtiers funds out-performed its peer group. Our long-term risk adjusted returns are also excellent. All of our multi-asset funds have above-average peer group risk adjusted returns over 1, 3, 5 and 10 years.
As I write, the European markets are rallying once more. The market volatility is making for a bumpy journey, but it’s creating attractive long-term investment opportunities which we hope will make for continued strong risk-adjusted returns.
Caroline Shaw CFA, MEng (Hons), Dip PFS, IMC, Chartered MCSI
Head of Fund & Asset Management
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