Monthly Investment Outlook - November 2020
- 06 November 2020
- 5 mins reading time
The pandemic continues to take lives and bring on the need for more lockdown restrictions. These restrictions will have a negative effect on share prices over the coming month or two. But we believe that share prices will be supported by the relatively high yields that many of them continue to generate, and by the economic recovery, which we expect to show signs of progress towards the end of the year.
We still have a preference for stocks that have strong cash-flows, manageable debt and decent post-pandemic prospects. However, our focus within the short-term tactical allocations (accounting for around 10% of total returns) has shifted from large, tech stocks, to smaller US stocks and selected companies in emerging markets.
This is because tech stocks have benefited significantly from the lockdown environment to the point that we anticipate a greater upside for other companies that have, to date, been left behind. It should be noted that our long-term strategic asset allocation (which we estimate accounts for the majority of returns) remains largely unchanged as it focuses on the 10-year horizon.
In terms of bonds, the recent rises in corporate bond prices have reduced the upside potential for further gains. So, while we still have a positive outlook for them, we reduced our short-term holding of corporate bonds and have used the money generated from these sales to support our equity preferences.
Government bonds are also very highly priced at the moment. With interest rates at their current historic lows and the bearing that these have on bond prices, the counterbalance that bonds would normally provide to movements in stock prices is limited. Nonetheless, they remain an important part of our overall long-term strategy, though we are not looking to add to our holdings in any significant way over the foreseeable future.
With bonds potentially less effective as a hedge, we continue to look to currencies to fulfil that role over the short-term. We have positions in the Japanese yen and, in October, we added an allocation to the US dollar.
Finally, when the economy shows stronger signs of recovery, we will look at opportunities to invest in commodities which could be set for a rebound.
Our general view of assets over the coming months can be summarised as follows:
Any views expressed are our in-house views as at the time of publishing.
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Forecasts of future performance are not a reliable guide to actual results. Investment markets and conditions can change rapidly and the views expressed should not be taken as statements of fact nor relied upon when making investment decisions. The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor might not get back their initial investment.
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