24 July 2020
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Welcome to our weekly newsletter, where the Manager summarises the key market developments over the last seven days.

The Noise

Earlier this week, European leaders crossed the Rubicon and agreed an unprecedented economic programme. The EU have agreed a deal on a €750bn recovery fund to address Covid-19 damage; importantly, all raised by issuing EU common bonds for the first time. The issuance of these bonds will enhance the trading bloc’s financial autonomy from the US, furthering its potential role as a reserve currency.

A coronavirus vaccine being developed by the University of Oxford and AstraZeneca is safe and shows signs of inducing an immune response, according to early clinical trial results published on Monday. The trial did not look at whether the vaccine prevents infection from the virus, however, that question will be answered in ongoing trials. Whilst this is good news, it must be acknowledged as a small step on a long path to a vaccine.

Yesterday the price of gold closed at $1,887 per ounce having pushed up nearly 5% over the week in Dollar terms. As the rally in gold continues, it looks like it might push above $1,900 for only the second time in history. The only time it’s happened before was when intraday gold prices exceeded $1,900 twice in 2001 in response to the European crisis when investors were worried that Europe would disintegrate as a trading bloc.

The Numbers

GBP Performance to 23/07/20
1 Week
YTD
Absolute Level
Equity GBP Total Return (MSCI)

UK (MSCI UK)

-0.80%

-17.20%

5466

Europe (MSCI Europe)

0.50%

-2.90%

6696

US (MSCI USA)

-0.60%

6.20%

8897

Japan (MSCI Japan)

-1.40%

-1.40%

6460

Emerging Markets (MSCI Emerging)

1.80%%

2.10%

518

Fixed Income GBP Total Return

UK Government (Barclays Sterling Gilts Index)

0.40%

9.80%

321

Investment Grade Hedged (Barclays Global Aggregate Corporate Bond Index)

0.80%

5.20%

319

High Yield Bonds Hedged (Barclays Global High Yield Index)

1.50%

-2.30%

518

GBP Performance to 23/07/20
1 Week
YTD
Absolute Level
Currency Moves

GBP vs USD

1.50%

-3.90%

1.27

GBP vs EUR

-0.40%

-7.10%

1.10

GBP vs JPY

1.10%

-5.50%

135

Commodities GBP Return

Gold (in £)

3.50%

29.40%

1487

Oil (in $)

-0.90%

-26.00%

41

Source: Bloomberg, data as at 23/07/2020

The Nuance

Investors face a landscape in which neither government bonds nor cash offer positive returns. The former have no room to run as yields are already flirting with negative territory. Returns on the latter remains beaten down by historically low interest rates.

Meanwhile, a plethora of government programmes (such as the European recovery programme mentioned above) offer strong support to the short-term troubles many companies are facing. This security suppresses some of the risk which would otherwise be associated with these assets.

This combination is driving investors to take risks they might ordinarily not in order to lock in some sort of meaningful returns. As such, corporate bonds and equities continue to push higher whilst gold offers a safe haven investment to protect against further downside risk.

As ever, looking for fairly priced, resilient businesses remains the focus of the Manager. By investing in these companies, it is able to look beyond the hostile short-term environment, confident that these businesses can endure, therefore, allowing the Manager to focus on the far more prosperous long-term prospects.

Quote of the week

“The science shouldn’t stand in the way”

Kayleigh McEnany, White House press secretary.

It’s fair to say that the Trump administration has done some serious toing and froing over the last few weeks and the message has not always been either consistent or clear. However, even by their usual standards this is memorable soundbite. The White House press secretary has revived President Trump’s calls for schools to reopen with the fantastic comment “the science shouldn’t stand in the way”. Echoing the president’s push for pupils to return to classrooms, Kayleigh McEnany said “we don’t think children should be locked up at home, with devastating consequences”. You may remember that back in April, Trump suggested injecting people with disinfectant to treat the virus. This is one man who won’t let a silly thing like science get in his way.

Source: Sanlam Private Wealth

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Sanlam Private Wealth is a trading name of Sanlam Private Investments (UK) Ltd.

Past performance is not a reliable indicator of future returns, investing involves risk and the value of investments, and the income from them, may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.

The information and opinion contained in this market view should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by Sanlam. Any expressions of opinion are subject to change without notice.

Disclaimer: VAM Cautious, Balanced and Growth Funds are compartments of VAM Managed Funds (Lux).
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