Market Commentary – positive steps

We keep a close eye on global market developments, and each quarter we share an overview with our clients. Over the 2021 Q1 period, the general trend has been an appreciation in markets, largely thanks to the approval and roll-out of various vaccine programmes. In the UK the smaller companies in particular that have more of a domestic focus have done very well over the quarter as the economy reopens and earnings expectations are upgraded, boosting share prices. Though the overall economic picture remains mixed, certain sectors from manufacturing to property have seen expansion and recovery, while areas such as logistics continue to benefit from strong demand. Going forward, additional support to business and consumers continues to be given globally to help alleviate this impact.

Short term investment outlook

Looking at the investment outlook in the short-term, we continue to focus on fundamentals and companies that have flexible  business models to allow them to adapt to constantly changing market conditions.  We continue to remain positive on equities on the whole given the level of support and reopening of economies. Central banks and governments continue to provide support to their economies, and as these economies re-open, there is careful analysis on how and with what speed the support mechanisms in place are to be withdrawn.

Concerns have also surfaced around higher inflation and potential for rises in interest rates sooner than has been forecast. While there has been a rise in inflation and government bond yields, central banks particularly in the UK remain a long way off their inflation targets. There continues to be additional support given in the UK and the US to bolster the economy, these would be the areas most likely to be stopped before rates increase. In the short term, some volatility around inflation numbers is likely as the year on year comparisons come through. As yet it is too early to establish whether there is likely to be a longer term inflation rise. The challenge will be if inflation becomes too high, which normally leads to a slowdown in the economies. At the moment, inflation remains low from a historical perspective and the Central Banks are happy for some inflation to enter the system in order to inflate away some of the debt pile to aid growth longer term. Equities in the initial phase of inflation increase are a good offset for returns as it is generally a sign the economy is doing well and in particular while rates remain low on a relative basis.

Our approach

We continue to actively engage with all of our fund managers and within the fixed income asset class, to monitor how they are positioned in the event that fiscal tightening is accelerated ahead of expectation. Many are positioned cautiously in companies that continue to have strong cash flows to meet their debt obligations. We remain slightly overweight in equities favouring active managers, who have been trimming and adding to positions when opportunities arise. We also continue to remain overweight in a pool of diversified real assets; many have inflation linked contractual payments often backed by governments, which would be useful should inflation continue to rise in the foreseeable.

Our portfolios remain diversified across each asset class, sector and geography, and our approach has the flexibility to take advantage of the changes in the markets throughout this period.

This information is obtained from sources considered reliable, but its accuracy and completeness is not guaranteed by Anderson Strathern Asset Management Limited. Neither the information nor any opinions expressed constitute financial advice. Investments can fluctuate in price, value and/or income and may return less than the original amount invested. Past performance is not necessarily a guide to future performance. Anderson Strathern Asset Management Limited is authorised and regulated by the Financial Conduct Authority.