Despite Covid-19 case numbers climbing, sentiment remained positive, with hope that rapid deployment of vaccines will spur a return to ‘normality’, leading to a swift economic recovery. Optimism persisted due to the high levels of efficacy of approved vaccines and despite signs that new strains of the virus will place healthcare provision under renewed and intense pressure in the near term.
Markets were buoyed by policy support, welcoming news of new fiscal stimulus measures which were finally passed in the US after months of stalled progress. The $900 billion relief package includes nearly $300 billion in small business relief, as well as other provisions, and was signed by President Trump on 27 December.
As widely expected, despite many months of negotiations and stand-offs, the EU and UK finally reached agreement on a post-Brexit trade deal to apply from the beginning of 2021.
Equity market returns over December were strong, notably from Developed Asia Pacific ex Japan and emerging markets, with Europe ex UK a relative laggard in local currency terms. Developed markets lagged emerging markets in general.
Relative performance across our strategies was mixed over the month, despite positive absolute returns for all. Our Global Small Cap, Emerging Market and European strategies saw notable outperformance, as did our US Value manager Barrow Hanley. Prudential was a top performer for the Trust this month, with our overweight position at fund level benefiting overall returns given the stock’s outperformance of the broader market over December. Overweights to Discovery and Delivery Hero also helped relative returns. In contrast, an overweight to Alibaba (a poor performer) detracted over December, as did our lack of exposure to Tesla. We ended the month at a discount of 5.0%, having averaged a discount of 5.8% over December.
Looking forward, it is impossible to predict with confidence how the economic and corporate backdrop will look as we enter the new year. That said, vaccine developments give us cause to hope that some form of normality could return by mid-way through 2021. While the resolution of the US election and Brexit has removed a certain degree of key event risk, it is likely that economic and virus-related challenges will continue in 2021.
Countries and companies will continue to face many challenges and it is likely that equity markets will have to navigate some aftershocks, both economic and virus related, over the coming months. Nonetheless, F&C Investment Trust has a tremendous advantage through our corporate structure which makes us well placed to withstand further market volatility. As always, we remain focused on the long-term opportunities, for the benefit of our shareholders.
All information as at 31 December 2020, unless stated otherwise.