Week 10, Groundhog Day once again. The lock down continues in a watered-down form in England if not in the other home nations as we no longer ‘stay at home’ but stay ‘alert’.
Sadly, a global health crisis is now morphing into a political weapon, relying on the science is no longer enough, it is more important to follow the political zeitgeist as dictated by the broadcast media.
Judging by the headlines over the bank holiday it is clear normality is not far away; any pretence at political consensus has long since passed, with different messages coming from partisan devolved governments and Dominic Cummings becoming the latest target for the lock down vigilantes.
As the blame game gathers pace the UK stock market appears to be shrugging off any negativity and is quietly returning to valuations not seen for 2 months; the sooner the politicians realign their priorities the better.
Across the UK workers appear to be gradually returning to work with garden centres and manufacturing the latest examples soon to be followed by high streets, department stores and shopping centres set to reopen on 15th June.
This has been a recession like no other, never have global stock markets fallen so hard and so fast and perhaps the stock market recovery will be breaking records in a more positive direction.
Whatever the future holds this pandemic has certainly accelerated a number of global macroeconomic themes that I would identify as a general move away from a reliance on fossil fuels, radical change in the composition of the high street and accelerated adoption of technology for businesses and consumers alike.
Other trends are perhaps of shorter duration, whilst never a particularly attractive investment in light of small margins in the best of times but these are surely the worst of times for the airlines and other industries that rely heavily on tourism and other non-essential spending.
This fall in demand is artificial and the best businesses in this sector should recover, only time will tell if consumer behaviour will be changed as the advantages of technology in solving logistical problems becomes ever more apparent.
At Matthew Douglas Limited we have made our own adjustments to how we do business which will undoubtedly impact on how we communicate and interact with our clients in the future.
Microsoft Teams and Zoom video conferencing have been invaluable tools for us during lockdown to ensure we are still able to function and communicate both internally but just as importantly with our clients and hopefully our clients of the future.
We have also recently concluded the biggest overhaul of our portfolio models in 12 years, in 2008 as now, the investment landscape shifted. When the facts change, we need to react to the new market environment we find ourselves in.
In the weeks ahead as we conduct reviews of our client’s individual portfolios you will notice that we have not only changed a number of funds that have been the staple of our portfolios for several years, we have also made changes to our asset allocations in recognition of a changing investment landscape.
We are reducing exposure to property assets and also to a significant bias towards UK stocks, instead you will see a new emphasis towards the market sectors we believe are best placed to drive the returns of the next decade.
Unsurprisingly this includes technology of various kinds but also identifying the big brands and global players of the future who are able to realise significant margin through brand awareness and market dominance.
New entrants to our models include Fundsmith Equity, Bailie Gifford Global Discovery and T Rowe Price US Smaller Companies.
As always, we seek to provide our clients with access to the best possible funds at the most competitive prices we are able to negotiate and never to overpay in sectors in which the cost active management will not outweigh the limitations of their benchmark.
In the same way we have been using our time in lock down as constructively as possible and have successfully negotiated platform price reductions this year with our 3 main platforms of choice, namely Standard Life, Novia and Fidelity.
The last 3 years have proved to be a difficult environment in which to generate positive returns, nevertheless this has been achieved despite the headwinds, going forward I think we are at the start of a new economic cycle and I look forward to sharing the rewards with you in the coming years.
The end of this pandemic and its consequences is now in sight and we can emerge blinking into the sunlight at a world changed but undiminished in which new opportunities await us.
Have a great week, the end is in sight.
Matthew Pescott Frost.