May saw equities extend their gains from April, as new COVID-19 infections peaked in many countries and lockdown measures continued to be eased. Markets also took heart from the advancement of several potential vaccines, with initial results showing promise. Strong gains in markets came despite rising political tensions between the US and China, as well as frictions within Europe following the German court challenge of the European Central Bank’s (ECB’s) quantitative easing programme.
Policy responses from central banks and governments continued in the background, albeit with no significant new announcements or programmes. The exception was the European Council’s proposal for a €750bn recovery fund which could help to improve fragile confidence in the cohesion of the eurozone.
Investors were encouraged by survey data for May which, while still low in absolute terms, rose from depressed levels for the US, eurozone and UK. Despite some signs of improvement, economic weakness is clear, with US unemployment for April at the highest level in post-war history at 14.7% and first-quarter GDP showing large declines across many regions including the US, UK, eurozone and Japan – even though lockdowns came late in the quarter.
Tensions ratcheted up between the US and China over the month as President Trump restarted his verbal attacks on China, blaming it for the COVID-19 pandemic and reigniting trade tensions, despite signing a phase-one trade deal earlier in the year. As the US election draws closer (November), we can expect this topic to be in the headlines and continue to be a key driver of markets.
Equity-market gains were led by the US and Japan, while Asia lagged on a relative and absolute basis. Performance across Europe was mixed. All of our listed strategies made positive absolute performance, with strong relative performance from our Global Sustainable strategy, along with our Europe and our Global Income strategies. Our external US Value manager Barrow Hanley also generated strong outperformance over the month. We ended the month at a discount of 7.1%, having averaged a discount of 5.3% in May.
Although the peak appears to have passed for many countries, the repercussions of COVID-19 still represent an existential threat to many businesses, unlike any of the challenges we have faced in recent times. Nonetheless, F&C Investment Trust has a strong advantage through our corporate structure which makes us well placed to withstand further market volatility. While we cannot tell with certainty when the current crisis will end, as always, we are focused on the long-term opportunities, for the benefit of our shareholders.
All information as at May 2020, unless stated otherwise.