“A Little Help from Our Friends”
“What do I do when my love is away?
Does it worry you to be alone?
How do I feel by the end of the day?
Are you sad because you're on your own?
No, I get by with a little help from my friends”
The Beatles, “With a Little Help from my Friends”
As we enter the second half of the year, I have “rewarded” myself with a break and as an excuse to avoid my children, who have started their summer holidays despite the curious fact that they haven’t really been back in school for any real time, I spent some time reviewing all the update notes that we have written this year.
It is startlingly obvious that both the terms “unprecedented” and “uncertainty” have been en vogue with this lowly scribe. Sadly, these words remain fashionable, but at least now they are being used to describe the biggest recovery in asset values in decades. For all of us as global citizens, but particularly for us as investors, there are a host of different and often contradictory factors for us to assess in a frenetic juggling act.
To try to help us put together the pieces of a particularly testing global economic, political and market jigsaw, we gathered together 16 of the external fund managers with whom we work closely with from the world of global asset management in late June for a Virtual Investment Conference. In times as challenging as these, it is useful to have such smart “friends” to lean on to help guide our market views and investment strategies.
For those who haven’t had the pleasure of hosting such an event, this was in some ways a nerve-wracking and strangely lonely experience (given that there were often around 150 people listening in).
The logistical challenges were easily overcome, thanks to the efforts of our marketing team. The presenters were fully prepared, and all spoke to the subjects we had decided in advance. We were delighted by the number of our professional contacts who attended (we are discussing running a version for clients later this year and will keep you updated) and thrilled with the quantity of interaction and the quality of the questions.
This just left the technology elements and the weird situation of sitting alone in one’s study (during a June heatwave) to cause chaos. The combination of IT and stifling heat led to a lot of perspiration, but I think I got through the situation without any major issues.
As a host I dropped out of one conversation (unnoticed!) and dialled back in, we had to deal with one young presenter’s technological deficiency that annoyed an older presenter (who claimed to be “technologically useless”) and I had to encourage some loud revellers away from my back gate before a session on global politics and economics (fitting, really).
The presenters were specifically selected for their different perspectives from a variety of backgrounds and asset class specialisations. They were deliberately chosen from the range of our contacts on the basis that they were not considered to be structurally “optimistic” or “pessimistic” and were renowned for flexibility in their views.
As many questions as answers!
The conclusions that we gleaned were fascinating, even if the week-long event threw up as many fresh questions as it did answers. In fairness, this result reflects the fitting nature of the terms “unprecedented” and “uncertainty”.
There was an equal balance between those who were positive and those who were more cautious on the economy, as it emerged from the first phase of the COVID-19 crisis. There was a roughly identical split between those who felt that the market recovery had gone “too far, too quickly” in the last few months and those who felt that investors would be handsomely rewarded for staying the course through the unpredictable months ahead.
Reassuringly, all presenters gave us confidence in the specific investments they manage on our clients’ behalf and that gave us confidence both in the funds that they manage and the overall balance of our current investment strategies.
The obvious conclusion of our Investment Conference and our own outlook is that the future is extremely hard to predict.
A cloudy forecast
Our crystal ball is understandably cloudy at this point in time, due to the inconclusive medical situation, but our view remains that an initial sharp “V” shaped recovery, from a point of extraordinary economic weakness, will give way to a shallower rise in economic output, as structural impairments from the COVID-19 crisis weigh on potential growth.
The “cloudiness” in our forecasts come from the “unprecedented” government and central bank support that has been provided to the global economy.
Investors’ response to the actions of the governments and the central banks has been unwaveringly bullish. The economic outlook and corporate fundamentals have been largely ignored, as investors have chosen instead to ride the central bank liquidity wave. We feel that for asset prices to maintain their recent gains or to push on to higher levels, we will need to see confirmation that economic activity is starting to improve.
Our core view, strengthened by the views we gathered, is that the economic recovery and the path for markets ahead will be “bumpy” and “brittle”, and that risks remain for investors, despite the obvious helping hand of governments and central banks.
We continue to “do as we always do” with portfolios; invest in a balanced fashion, create diversified investment strategies and focus on long term investment opportunities. We feel strongly that this approach is the best way to manage portfolios through the decade that we entitled “the Turbulent Twenties” before it even began. Worryingly, this description looks prophetic thus far.