Investment Trusts

Market roundup: short-term uncertainty but silver linings

Peter Hewitt, Manager of BMO Managed Portfolio Trust, discusses the short-term risks he sees in the market and points out some important silver linings.
October 2020

Peter Hewitt

Director, Portfolio Manager, Multi Asset Solutions

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Risk Disclaimer 

Capital is at risk. The value of an investment is dependent on the supply and demand for the trust’s shares rather than its underlying assets. The value of the investment will not be the same as the value of the trust’s underlying assets.

Past performance should not be seen as an indication of future performance. Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned

Since our last newsletter in July, life in the pandemic seemed to return to something vaguely resembling our old normality. Businesses began to reopen, we enjoyed heavily discounted meals thanks to Rishi Sunak and some travelled abroad to salvage a summer holiday. I was lucky enough to do the latter and enjoyed a trip to Portugal with my family. I am consequently writing this update from my homely quarantine cell in Edinburgh as I wait out the two-week rule!

Covid-19 continues

The summer months may have brought a glimmer of the old pre-pandemic times, but the renewed restrictions of late have dragged us back into our current (hopefully temporary) reality. Big uncertainties around the virus remain, with cases currently increasing – and that’s before we head into the dreaded flu season, when hospitals will likely begin filling up faster again. However, hope remains focused around a vaccine, which will allow the world economy and corporate earnings to finally fully recover. At least one of the seven vaccines currently undergoing Phase III trials will likely prove successful – and the Oxford vaccine is still widely considered the front runner here. I would hope to see a substantial step change in market sentiment and valuations should a vaccine be approved soon – but for real positive impact we’ll most likely have to wait until the vaccinations themselves begin. 

Meanwhile, other big events are looming: Brexit is back in the headlines, while the US election is fast approaching.

 

Brexit is back

Brexit reared its head recently with news that the UK government is contemplating a breach of the Withdrawal Agreement, prompting threats of EU legal action and tarnishing Britain’s international reputation. Although it’s been brought into question yet again, I do still believe a deal can be reached. And whatever the outcome, there will be differing effects on differing markets. UK equites should fare better if a deal is reached; conversely, while a no-deal Brexit would be bad for UK equities in the short term, the weaker pound would benefit overseas-focused portfolios.

 

The Trump effect

Turning to the US election: while a Biden win would be celebrated for numerous – countless – reasons, there could be a silver lining on the cloud of a second term of Trump: the stock market. Under Trump’s reign, markets enjoyed tax reforms and less regulation – two policies likely to be brought to an end under a Biden administration.

 

Final thoughts

So what’s the story here? Well really, there’s two. On the one hand, investors should beware of the volatility ahead. We’re facing significant short-term uncertainty, with potentially long-term effects. But on the other hand, there is an upside story to every concern: a vaccine could recover market sentiment; a Brexit deal could boost UK equities; and a second term of Trump could be more favourable to equity markets.

Risk Disclaimer 

Capital is at risk. The value of an investment is dependent on the supply and demand for the trust’s shares rather than its underlying assets. The value of the investment will not be the same as the value of the trust’s underlying assets.

Past performance should not be seen as an indication of future performance. Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned

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