Quarterly Investment Update

We at The Spectrum IFA Group work closely with a number of Discretionary Fund Managers.

One of the best, in my view, is Rathbone Investment Management Ltd who are based at Finsbury Circus, in London.

I thought I would share their Quarterly Investment update written by

Investment Director Mr Robert Walker Ch.FCSI.

Quarterly investment update

This is no ordinary recession and no ordinary recovery.

Since the global economy went into lockdown in response to the COVID-19 health crisis, financial markets, households and companies have been supported by an unprecedented level of government and central bank stimulus around the world.

The difference in returns in the third quarter are stark, with US equities seeing a strong performance especially in the big technology companies while the UK’s FTSE 100 was -5% lower on a combination of Brexit and Covid-19 fears.

After an initial recovery in economic activity there are already some signs that this may be plateauing.  Unemployment continues to be the biggest risk to a sustained recovery and may increase again if a significant number of temporarily laid off or furloughed staff aren’t re-employed. US unemployment has fallen quickly from a peak rate of 14.7% to 8.4% but is creeping up. The unemployment rate of those unemployed for between 15 and 26 weeks (broadly, those laid off because of the pandemic) has risen to double the peak seen in the global financial crisis. If these people are still unemployed beyond 27 weeks, history suggests they may find it difficult to ever find a new job which would be a significant headwind to a continuing recovery.

The political backdrop is also uncertain.


The poor performance of the UK since the referendum is well known, as is the high likelihood that leaving the EU with or without Prime Minister Boris Johnson’s deal will make the UK relatively worse off. Most independent economic researchers forecast that UK GDP, relative to current arrangements, will be between 3% and 6% worse off in seven to 10 years if the UK and EU sign a free trade agreement, the faltering prospect of which has seen the pound fall by 15-20% since 2015.  As we write the likelihood of a ‘no deal’ Brexit is still too close to call.


Our analysis suggests that the single best predictor of American presidential elections is the strength of the economy. The extraordinary nature of the COVID recession, in which unprecedented fiscal support caused personal incomes to increase dramatically, suggests Mr Trump’s chances are still good.

However, this time could be different with only 40% of independent voters approving of the way Mr Trump has responded to the health crisis but should Mr Biden be elected, some of the least market-friendly Democratic policies are less likely to be enacted. That’s because they would need to win both the presidency and control of the Senate.  As for foreign policy towards China, the US’s largest trading partner, and plans to spend big on infrastructure, Mr Biden is not too dissimilar to his rival.

We continue to favour the US market which provides us with the greatest opportunities to invest in world leading businesses that should thrive in this challenging economic environment driven by powerful shifts in the global economy.


Neither the equity market nor the yen were disturbed by the news of former Prime Minister Shinzo Abe’s sudden health-related resignation with the top spot secured by his right-hand man, the Chief Cabinet Secretary Yoshihide Suga.

Through a combination of loose monetary policy and structural reform, ‘Abenomics’ has successfully seen profitability improving, companies increasingly expanding overseas, and a greater belief that a sharp appreciation of the yen won’t happen again. Good corporate governance is now well established.

Japanese equities have performed relatively well this year. We believe their resilience is attributable to a combination of stable dividends, a high proportion of stocks in favourable sectors plus a weaker yen.

Investment outlook

We can expect more monetary stimulus and support from central banks that have an enormous amount of unused capacity available for alleviating any renewed stress in financial conditions which is positive for equity markets. This should keep corporate borrowing costs low.

We do not believe therefore that this is a good time to reduce our long-term equity exposure, but economic and political uncertainty warrants cautious positioning and a bias towards high quality companies where we believe that earnings growth is still possible.  We believe it is sensible to remain broadly invested but with a continued preference for growth and only high-quality cyclical companies that can benefit from a shift to a digital and more sustainable economy.

We believe high valuations of growth businesses are underpinned by the increasing scarcity of growth opportunities while interest rates and the returns on low risk assets are expected to stay low into the foreseeable future.

 If you would like to discuss any of the points raised in this Investment update please contact me, either via the CBBA website https://www.cbba.es/members/international-financial-advisers/  , or by email at dennis.radford@spectrum-ifa.com