Welcome to week 8 of lockdown. The good news appears to be that we no longer must stay at home, we just have to stay ‘alert’.
I welcome the announcement from the Prime Minister on Sunday night although most media outlets and rival politicians seem determined to make political capital by framing this update as either premature or unclear.
Personally, I welcome some honesty and pragmatism from the government and an appreciation that if the economic effects of this virus are not to endure for many years to come, we need a strategy that encourages a free market recovery.
In a major crisis such as a pandemic or war this requires decisive and swift intervention from government to avoid catastrophe, no doubt enquiries and political discussion will seek to allocate retrospective blame on political opponents over the years to come.
For now, markets care about the future, not where we are or where we have been. The fiscal stimulus applied by government in the UK and elsewhere is welcome but the solutions that avoid disaster are not the same as the ones that will provide the best chance of swift economic recovery.
Clearly, we all need to apply vigilance to social distancing, but we also need a coordinated response to reignite the UK economy and to provide a fertile environment for economic growth.
The message is unambiguous, if you cannot work from home, you can maintain acceptable levels of social distance in the workplace and ideally avoid public transport then go back to work.
Most people in the UK work for small businesses and 83% of them do not commute using public transport, these small businesses also generate the majority of the government’s tax revenues; they are invariably highly efficient and adaptable hence I have little doubt that a UK recovery will take months not years.
Poor businesses will fail but most will thrive, the economy will be the stronger for it and we may well look back on this period as a great investment opportunity.
The global economy has been hibernating for several months and will probably not be back to full capacity until well into 2021 best rest assured the recovery in global stock markets started only days into the UK lockdown and before the peak of this pandemic.
As always, markets look to the future so when you are thinking all is lost and your investments will never recover that is the moment to override your despair and remind yourself the purpose of why we invest; ask whether it is more likely that the world has changed forever or if the capitulating market is like every other one that went before it and will rebound as the facts change.
At Matthew Douglas Limited we have spent the past 12 years running a number of well researched and risk adjusted portfolios; with varying degrees of stock market exposure they are designed to deliver the highest levels of return compatible with a stated appetite for risk.
As with most things in life reward invariably comes with an element of risk; importantly, whilst we cannot usually predict the short-term nature of markets it is possible to evaluate the data making risk measurable.
I am pleased to confirm that all of our portfolios across the risk spectrum have performed significantly better than the UK stock market as measured by the FTSE100 over the past 12 months and to demonstrate this please refer to the graph below:
More important however is the second graph which compares the same low, medium and high-risk portfolios against the FTSE100 benchmark over the past 10 years:
In common with everyone I look forward to an end to this pandemic but in the meantime please look after yourselves, hopefully we are through the worst.
Matthew Pescott Frost