Equity market returns globally were mixed. A backdrop of positive developments regarding a possible COVID-19 vaccine and a significantly better-than-expected US earnings season were offset against the negative of rising COVID-19 cases in parts of Western Europe, the US and Japan.
COVID-19 case numbers continued to rise in certain US states, including Florida and Texas, as well as in parts of Western Europe, notably Spain. On a positive note, there has been marked progress in terms of vaccine development, with the results of an early clinical trial of the Oxford vaccine appearing to give grounds for optimism.
Aggressive fiscal action in response to the pandemic continued, as the EU’s newly agreed Recovery Fund pledged to commit €750 billion in the coming years. In addition, UK Chancellor Rishi Sunak announced further measures to support the economy. In the US, many of the temporary fiscal measures expire soon and a new package should be agreed in the next month.
The second-quarter earnings season is now well underway, with figures coming in stronger than expected as over 80% of US companies beat (low) expectations. Despite this, the broader picture is fairly bleak, with company earnings growth so far down by over 20% compared with last year for Europe, and by over 30% in the US. COVID-19 has clearly taken its toll.
Equity market performance over July was mixed, with emerging markets outperforming developed markets. Japan and the UK lagged on a relative basis. Performance from our strategies was varied over the month. There was positive absolute performance from both our external growth manager, T. Rowe Price and our emerging markets strategy, while our Japanese and European strategies generated positive relative performance. Amazon was a top performer for the Trust this month, with our overweight position at the fund level benefiting overall returns, given the stock’s strong performance over July. Overweight positions in TSMC (Taiwan Semiconductor Manufacturing Company) and PayPal also added to returns.
We ended the month at a discount of 8.8%, having averaged a discount of 7.5% over July.
Looking forward, many companies face great challenges and clearly we cannot predict exactly when the current crisis will end. Equity markets are likely to be volatile in amongst the uncertainty. For an investment trust such as FCIT, with its strong corporate structure, such difficult times tend to bring very good investment opportunities. As ever, we remain focused on these for the longer term prosperity of our shareholders.
All information as at 31 July 2020, unless stated otherwise.