The World In A Week - Snakes And Ladders
Some elements of investing can be a zero-sum game. When one side of an investment gains, the other side loses. For those investing in GameStop, the profits made when the stock went up was reflected in the losses made by the hedge funds who were betting on the stock going down. It is all well and good when the dice roll means you land on a ladder, but it is not so pleasant when you land on a snake.
So, it would appear that the Reddit bubble has burst and there will undoubtedly be some pain for those individuals who entered the battle late. GameStop’s share price started the week at $316.56 and finished at $63.77, representing an almost 80% drop for the week, still significantly above its 52-week low of $2.57.
From a psychological perspective, we hope that these speculative episodes do not deter true investors from taking appropriate risks for their long-term investments, as they do not affect or influence our robust investment processes.
In a world that is waiting for vaccinations to inoculate sufficient people in order to ease lockdown restrictions, knowing that central banks and governments are still committed to providing liquidity and stimulus is critical. This was underlined in the Bank of England’s Monetary Policy Committee minutes last week, where they explored the possibility of negative interest rates. However, it was stressed by Governor Andrew Bailey that while we should expect the Bank of England to have investigated all monetary options, he did not want to send any signal that it intended to set a negative bank rate at some point in the future. It is also clear that President Biden wants to reassure the US people by pushing ahead with the latest instalment in a long line of fiscal stimulus plans. The $1.9 trillion economic relief plan looks set to be pushed through, with or without the support from Republicans.
It seems that “doing whatever it takes” is the modus operandi for most central banks and governments during this pandemic, and the originator of the phrase has returned to the political spotlight. Former President of the European Central Bank, Mario Draghi, who adopted the phrase in 2012 to give reassurance that the Eurozone would not crumble, has been asked to head up the Italian government. Can he repeat his success as Super Mario and stabilise a faltering Italy?
The final person sliding down the gameboard is Jeff Bezos who announced that he will be stepping down as Chief Executive of the world’s largest e-commerce retailer. Climbing a ladder to fill those shoes is Andy Jassy, who was heading up Amazon Web Services and will have a big plate to deal with once the pandemic has receded.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 8th February 2021.
© 2021 Beaufort Investment. All rights reserved.
The World In A Week - GameStop & Match
Well, who would have thought a small US bricks and mortar video retailer would grab the attention of the world? As we keep seeing of late – expect the unexpected! We’ve not heard the term David vs Goliath being used as yet, but we’ll coin it!
GameStop is the company in question. A company sitting in a very precarious financial position and being heavily bet against by the hedge fund firm, Mervin Capital. Then, in step many private investors, fueled by social media chat on sites like Reddit, have protected the company from the “bully boys” of Wall Street. Well, what have we seen? The share price rocket over +900% this year, even though the stock price took a -70% hit on Thursday. A company in the abyss worth less than $1bn a few weeks ago, suddenly skyrocketing to a market cap over $25bn, is simply staggering! The plot continues to thicken – industry watchdogs and regulators are warning about market abuse and potentially looking to step in. The trading platform that many ‘Redditors’ use to transact Robinhood Markets has stopped taking trade orders on the stock, with many private investors now crying foul – why can hedge fund managers do as they see fit, but mom & pop can’t? Lawsuits are being threatened, but Robinhood has probably taken the right moral action, to stop the same investors losing their shirt, as highlighted by the stock price fall on Thursday. At the same time Robinhood also had to go looking for a cash injection itself, as they had to put up the collateral for these trades after they got so big!
Why should we care? Is this a real attempt to rescue the company or David trying to lay one on Wall Street Goliaths, and why if that’s the case? Woolworths, C&A, Blockbuster are just a few high street names that have fallen by the wayside. Why? Because the model had stopped working and demand shifted elsewhere. However, is this whole episode significantly more profound and a reflection of the failures that lead to the Great Financial Crisis, and the widening social and economic gaps that continue to persist under capitalism. Will this be a watershed moment?
What we have seen over the last few months is that global economic data has been much stronger than forecast, which highlights the ability of humankind to adapt (or bouncebackability as they used to say on Soccer AM) in the face of adversity.
In other news – there continues to be mud-slinging in Europe over the slow and unequal rollout of the vaccines, we’re sure many Brexiteers are sitting there saying “I told you so!”. Finally, the AstraZeneca vaccine has been given the approval in Europe, and the Novavax vaccine shows 89% effectiveness in UK trials. Normality may return…..
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 1st February 2021. © 2021 Beaufort Investment. All rights reserved.
The World In A Week - Bitcoin & Other Video Games
Markets were broadly positive last week with the MSCI All Country World Index (ACWI) of global stocks up +1.0%, giving a return of +3.2% for the year to date. In a slight reversal of the trend which started in Q4 last year, we witnessed expensive markets such as the US and China outpace cheaper markets in the UK and Europe.
Beyond the rather sedate market-level movements, the week saw the continuation of some truly bizarre single stock activity. Shares in video game retailer GameStop surged +80% on Friday, as amateur traders coordinating on the online message board Reddit used stock options to trigger a “short squeeze” in the stock. This caused the market capitalisation of GameStop to rise from $1.3bn at the end of 2020 to $4bn. GameStop is lossmaking, reporting a -31% drop in sales in December 2020 and is a brick-and-mortar retailer which is facing digital disruption.
In the US, equity options’ trading volume on retail platforms such as Robinhood has exploded recently as punters funnel their stimulus cheques into highly speculative bets. This has been concentrated in a handful of names such as the FAANG stocks, Tesla and a series of other tech and biotech names.
Another market that continues on a wild ride is of course Bitcoin and the wider cryptocurrency market. Bitcoin rose 4x vs the US Dollar between October last year and January 2021, before falling -22%. For an asset which is touted as a replacement currency, we struggle to understand how something so volatile and speculative serves as a store of value or medium of exchange. While it has been interesting to witness some multi-asset investors adding Bitcoin to their holdings in the last year, Beaufort Investment is not in the business of adding things it does not understand to our client’s portfolios.
These developments continue to give the Investment team cause for a certain degree of caution that speculative excesses are building in certain areas of markets. Conversely to this, it is likely that fantastic opportunities for future returns reside in the more unloved and unglamorous areas of markets. Now is the time to employ significant selectivity and nuance to one’s investment approach.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 25th January 2021. © 2021 Beaufort Investment. All rights reserved.
The World In A Week - Cheque Mate
The political situation in the US continued to dominate the news headlines last week with President Trump impeached for the second time during his term. National Guard troops have been deployed to Washington D.C. amid safety concerns regarding the upcoming inauguration of President Elect, Joe Biden, taking place this Wednesday. President Elect, Joe Biden has announced his plan to issue a subsequent stimulus package, amounting to $1.9 billion to boost domestic consumption and this will include $1,400 stimulus cheques and $350 billion in state and local aid. He has also proposed to raise the minimum wage to $15 per hour and has encouraged widespread adoption of the vaccine which has started to be rolled out across the US.
Restrictions tightened further in the UK, with travel corridors closing until mid-February to restrict the spread of the new COVID-19 variant. Any travellers arriving at UK borders must provide evidence of a negative test in the preceding 72 hours.
The UK economy declined by -2.6% in November, with high street shops and restaurants being forced to close with the tiered lockdown system in place. This was still way ahead of expectations, but November’s decline was a clear example of the economic impact caused by a lockdown given the prior months of May to October all generated positive GDP growth as the country phased out of the national restrictions. The UK is a service dominated economy and the transition to a more resilient remote working environment has been successful, enabling more companies to trade effectively during the pandemic. However, following the national lockdown imposed in December by Boris Johnson, the likelihood of the UK entering a double-dip recession is high, should we remain in full lockdown for the next two months.
Elsewhere, China’s economy expanded 6.5% in Q4 of 2020, amounting to a 2.3% annual GDP growth in 2020 with the International Monetary Fund predicting that China will be the only country to experience growth at all. China’s economic growth figures have historically faced scrutiny over their reliability. However, the country was quick to react to the virus and has benefited from being a strong exporter following the trade deal agreed with the US.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 18th January 2021.
What does the Brexit deal mean for your finances?
After more than four years since the 2016 referendum, the UK and the European Union have agreed a Brexit trade deal. But while a compromise has been found, the divorce may still have far-reaching consequences for the money in your pocket. So now a deal is in place, it’s a good time to take stock of your finances and ensure they are in a solid position now the UK has left the bloc.
Time to look again at the FTSE 100?
The FTSE 100, the UK’s index of blue-chip companies, has lagged behind large international rivals since the referendum vote, particularly last year. The combination of Brexit uncertainty and coronavirus caused the UK’s leading index to plunge 14.3% in 2020 – its worst year since 2008. By comparison, China’s CSI 300 rocketed 27% last year, while the US’s S&P 500 and Japan’s Nikkei indices ended the year up roughly 16%. But what happens now the UK has a deal in place with the EU? Could we see a FTSE 100 resurgence? As ever, it depends on who you ask.
Some experts believe investor sentiment towards unloved UK firms could improve now a deal is in place, which could lead to higher share prices. However, others believe the FTSE’s lack of fast-growing technology companies will continue to hold it back, while COVID-19 may act as a drag in the short term. A resurgent pound on the back of the Brexit deal could also dent the profits of the many firms listed on the FTSE 100 that earn the bulk of their revenues in dollars or euros. As for smaller companies (i.e.: those listed on the FTSE 250 and AIM indices), a deal provides more certainty, which may help share prices.
Will I get more on my savings?
Now England is back in a national lockdown, it’s likely the Bank of England will keep rates at 0.1% to support the economy. Unfortunately, if you have a savings account, it means you will probably continue to get a poor rate on your cash for some time yet. That said, most experts recommend keeping between three and six months’ worth of outgoings in an easy-access cash savings account to cover emergencies.
Is my pension still safe?
There are roughly 1.3 million Brits living on the continent, many of them with private pensions with UK providers, according to the United Nations. While the Brexit trade deal does not cover pension products directly, the UK and EU are about to begin talks about how they will co-operate on financial services products in the future. The Brexit deal on goods gives hope that they will come to an agreement that doesn’t hurt those with financial assets such as pensions or property on either side of the English Channel.
But for now, the best advice is: sit tight and don’t panic. However, if you are after peace of mind, then it’s worth speaking to your financial adviser about any of the themes mentioned and options for your money as we move on from life in the EU.
Multi-year lows, record highs, and a pandemic – 2020 by the numbers
2020 was a year like no other. A global pandemic the likes of which has not been witnessed in our lifetimes changed the way the world works, and had a huge impact on global markets.
A huge decline in the first few months for most equity markets, and a rush to buy protection in the form of bonds and gold, was followed by record stimulus across the world from central banks as governments shelled out to companies to furlough staff.
Equities rebounded, with major markets including the US jumping to record highs. Bonds, meanwhile, move into negative territory, with many bonds now charging investors interest to hold them (rather than paying them an income).
Let’s not forget alternatives either. Gold, regarded as the ultimate safe haven, soared to a record peak above $2,000, and remains near there today. Meanwhile crypto currencies like Bitcoin saw unprecedented buying, more than quadrupling from lows in some cases, particularly as institutional investors started entering the market.
The numbers themselves are stark, and here are some of the highlights.
Equity markets break new records
US equity markets endured a bleak start to 2020, only to surge back in the second half as its huge weighting to technology stocks won out in the switch to working from home. In total, the S&P 500 rose 18.4% last year, while the tech-heavy Nasdaq index gained more than 40%. China, where the coronavirus pandemic began, also saw impressive gains in 2020, with the MSCI China index up almost 25%.
There were losers though, even as US markets smashed through record highs. The UK, blighted by both the pandemic and Brexit, struggled to make headway, with the FTSE 100 index shedding 15%, despite rallying off lows as the country reopened after the first lockdown.
A quarter of the world’s investment grade bonds now have a negative yield
As equities rallied, demand for safe haven bonds remained very much a priority for many investors (bolstered by central bank buying). By mid-December some $18.4trn of bonds were trading with a negative yield according to Bloomberg, with only US government bonds managing to still trade with positive yields across all time-horizons.
Gold
Having already risen substantially in 2019, gold’s meteoric rise continued in 2020, spurred by central banks buying up bonds by issuing more debt, and thus weakening their own financial positions. The precious metal jumped by more than 20% over the course of the year to leave the gold price just shy of $1,900 (a level it is not trading above). In truth, it could have been even better for gold, with the price actually rising above the $2,000 mark at one stage last year, before retreating late on.
Even with a year like 2020 behind us there are still many permutations of the coronavirus crisis left, meaning there is no doubt the next 12 months in markets are set to be as eventful as the last. If you would like to discuss any of the themes and ideas in this article don’t hesitate to get in touch with your adviser.
Could the government tax over 40s to fund social care? Here’s how to prepare for later life costs
Former Health Secretary, now Chair of the Health and Social care parliamentary committee, Jeremy Hunt, has called on the government to introduce a social care tax on the over 40s. But you shouldn’t wait for the government to act, instead planning for the future and maximising your retirement pot now.
Reform of how social care is paid for and managed has been fermenting in the agenda of the government for some time. From Theresa May’s ill-fated plans in 2017, to the social care green paper stuck unpublished while the government fights more immediate fires, there are still more questions than answers. In July last year The Guardian reported that Health Secretary Matt Hancock was in favour of a social care tax plan for the over 40s being looked at by government departments. But events have overtaken long-term issues and plans have been on backburners since.
Government ideas
One possibility is raising an age-specific levy or ‘hypothecated’ tax on anyone over the age of 40. This would take a specific amount in tax and the money would be ringfenced to cover the cost of social care, which is currently absorbed by general taxation, but is ballooning in size as our population ages. The government is said to be looking at the experiences of Japan and Germany in funding social care costs. In Germany for example, all workers over the age of 40 pay 1.5% of their annual salary into a ringfenced social care fund. Funds can then be accessed later in life to pay for services such as in-home care or even care home costs.
Another more controversial proposal though is compulsory social care insurance. This would compel those over the age of 40 to take out some form of protection product that would effectively insure themselves against any potential future cost of care. Such a proposal would be inherently more controversial because it would rely on insurance market dynamics and consumer choice to pick policies and decide how much to pay into an individual fund.
Personal choices
In the meantime, it makes sense to ensure you’re doing all you can to prepare financially for any outcome in later life. Research routinely finds that people underestimate, vastly, the cost of later-life care and the possibility that they might need it. A 2019 Which? survey found that people on average underestimated the cost of later life care by around £17,000. Government plans are still at an embryonic stage, and while it will likely come back into focus once the worst of the pandemic is past, for now the most important act individuals can take is to maximise their long-term savings into pensions and ISA as much as possible and making money work harder to leave them with larger pots on retirement.
Pensions and ISAs in particular are an important insurance policy when in retirement as these are much more likely to be easy to liquidate when you need money later in life. If you have any questions around the cost of care in later life or how to prepare your portfolio and would like to discuss these themes further, get in touch with your adviser.
Three top tips for getting your portfolio primed for 2021
It’s the time of year again when we’re thinking about New Year’s resolutions, whether it be getting more exercise, spending more time with our children or taking up a new hobby. But the start of the year is also a great opportunity to take a look at your portfolio, to ensure it is doing what it should be but also to ensure it is setup correctly to weather the current environment.
Below are three things you should be considering right now to ensure your portfolio is in tip-top shape for 2021.
Time to rebalance
While many sectors have struggled through coronavirus, Big Tech – or specifically US tech – has boomed, earning investors a small fortune in the process. That’s not a bad thing, but it does mean that your portfolio now may be a little tech-heavy because of the profits you have made over the past year. Therefore, it’s worth taking a close look at your holdings and deciding whether it’s best to cash in some of your profits on your US tech stocks and using it to rebalance your portfolio a little. For example, you may decide you want to take some of that money and invest in emerging market equities, unloved UK stocks or classic defensive stocks that tend to perform well in volatile markets.
Reassess your goals
It’s always a good idea to reassess your investment goals from time to time, so why not at the start of a new year? The chances are your life has changed considerably since you first opened your stocks and shares ISA or your general investing account. You may have got married, had children, started a new career or bought a new house. If that’s the case, you may need to reassess your long-term savings goals and work out if your portfolio is geared up to achieve them.
Protect yourself against inflation
As well as being devastating for health and the economy, coronavirus – and multiple lockdowns that have accompanied it – has had a huge impact on our spending habits. Those of us lucky enough to keep our jobs and were able to work from home have found that we have saved a considerable sum over the past year. In fact, UK households have reportedly squirreled away more than £100bn since the start of the pandemic.
However, sooner or later things will get back to normal, and it is likely that households will open up the purse strings again. If that does happen, it means one thing: inflation. A tried and trusted way to combat inflation is to invest in gold, which is seen as a store of value and therefore a good hedge against rising prices. That said, it’s not wise to overexpose yourself to gold, a small allocation as part of a diversified portfolio will suffice.
Your financial adviser will be able to advise you on an appropriate investment in the precious yellow metal.
The World In A Week - White House Down
Not to be outshone by its predecessor, 2021 gave us an unexpected first week of the year. Politically, this was going to be an important week in America. We had the final two seats in the Senate being contested, and if the Democrats could overturn the incumbent Republicans, it would give President Elect Joe Biden a clean sweep and potentially give his administration a greater chance of pushing through changes, such as climate change and healthcare reform.
The Georgia election, where the two seats were being contested, had to be rerun as none of the candidates in the election in November had achieved the 50% needed for victory under state rules. So, on Tuesday the people voted, and the Democrats secured the final two seats in the Senate, giving them an equal number to the Republicans at 50 seats each. This gives the Democrats full control of the Senate, the House of Representatives, and the White House, for the first time since 2009.
How does an equal split of seats in the Senate give the Democrats control? The incoming Democratic Vice-President Elect, Kamala Harris, will preside over the Senate once she takes office and in the event of a tie, she will have the all-important tie-breaking vote.
Both votes in Georgia were extremely close, with the winning margins being 50.7% and 50.28% for the two seats. As you can imagine, this stoked the ire of President Trump, who continued to make unsubstantiated claims for electoral fraud.
What happened is unimaginable outside of a Hollywood blockbuster. Shortly after hosting a rally outside of the White House, hundreds of pro-Trump protesters pushed through barriers set up along the perimeter of the Capitol, where Congress were meeting to confirm Joe Biden’s election victory.
The pro-Trump supporters stormed the Capitol building, while those inside either took shelter or were evacuated. In the melee four people died and scenes of windows being smashed, and doors being forced open, were broadcast around the world to a stunned audience. The finger of blame was pointed squarely at President Trump for inciting this violence, through the rally and his subsequent comments on social media. Facebook and Twitter took steps to block President Trump and his accounts were, and remain suspended.
This has resulted in a push by Democrats to impeach President Trump for an unprecedented second time. A motion will be introduced today, calling on Vice-President Mike Pence to strip President Trump of his office. If Mike Pence refuses, then the Democrats plan to vote to impeach President Trump later this week, which would make him the first president to be impeached twice. There are conflicts within both parties on the best way to resolve this crisis and while President Trump’s resignation would be the best possible solution, it is unlikely that this will happen.
Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 11th January 2021.
The World In A Week - “That’s All Folks!”
As Michael Caine famously said in the iconic movie The Italian Job, “You’re only supposed to blow the bloody doors off!” Which seems to sum up 2020 well – it’s not what we wanted, not what we expected, and the ramifications keep rumbling on. Still, we are now into a new year, and surely 2021 cannot be as bad, unpredictable, or as turbulent as 2020. We have several vaccines approved that are starting to be rolled out, and central authorities are throwing sums of money around that belittle the policies instigated to address the Great Financial Crisis.
What else? Oh yes – after much tedious toing and froing we finally have a trade deal between Europe and the UK. What does it amount to? Well probably a small portion of what we had when we were a member of the EU! Still a deal is better than no deal, and the initial market reaction seems to have been taken well. However, the banking sector continues to be under pressure with persistent worries about the impact of the Coronavirus Pandemic on the global economy, or it could be extrapolated that lack of agreement on financial service equivalence in the Brexit deal, is really what’s driving negative sentiment towards the sector. All will become clear in time.
But let us get back to the positives – we have the vaccine rollout, which is generally providing a fillip for markets, and President Trump has finally signed-off the fiscal package for pandemic relief in the US providing a further positive driver.
As regards to 2020 I think we should sign-off in the words of Bugs Bunny “That’s all folks!”