I have said for years that I don’t get a feel for how equity markets will start the year (with the implication that would tell me something about the market psychology) until the third week of January. Last year at this time, I thought the world had gone mad because markets were heading up at astonishing rates. The Covid crisis – not really foreseeable until the end of January, brought that to a halt, of course.
I wrote about Covid for the first time on January 27th 2020 with what I am pleased to see was some prescience, but I concluded that the value of financial assets is in the end only dependent on demand. Because vast sums of liquidity have been poured into global economies, that demand had been sustained, even amplified.
So what about 2021?
My gut feeling is that markets had been factoring in good things from a Biden administration (more public spending, more liquidity to feed into asset prices), post Brexit clarity in Europe and progress with vaccinations, BUT that enthusiasm is maybe stalling. I don’t have much evidence in terms of performance numbers – that is just my experience in watching daily index movements and my own portfolio components.
I decided to look for some recent performance numbers from fund managers with very different styles and stock ownership.
| FUND | 1 month | 3 months |
| Axa Framlington Technology | 3.85% | 8.67% |
| Black Rock European | 1.45% | 11.7% |
| Blue Whale Growth | -2% | -4% |
| Fundsmith Equity | -1.3% | -0.32% |
| Baillie Gifford Global Discovery | 12.27% | 22.49% |
| Man GLG Undervalued aAssets | 5% | 27% |
What do you make of this? Have Terry Smith (Fundsmith) and Stephen Yiu (Blue Whale) lost the plot? I think not. Here are my conclusions:
- The managers that chase the momentum ‘(hoped for) growth stocks’ like Tesla, Ocado and Netflix think we have business as usual. This means that overvalued shares have just become more overvalued.
- Some investors have realised that there are VERY cheap shares available in the UK and started to buy value. This is a normal cyclical change that was predictable – I wrote about it some months back.
- The European market has indeed benefited from Brexit having actually happened. Again no surprise there.
- The aforementioned managers Smith and Yiu are taking the view that the global stocks worth buying are those that look like good value on deep analysis and are losing out at this stage because they are not chasing momentum. That is again something that often happens to good managers ahead of an inflection point, but it is not a guarantee that they are right.
I am not offering advice on what to buy and sell – these were just examples that I chose without any specific logic – just the knowledge that the funds shown are quite different in terms of manager style and objectives.
However, I think you will work out what funds are moving from expensive to even more expensive and that some cyclical changes are happening.
My feeling about being invested in markets is similar in a way to what I experienced in my younger days when I drove my sports cars very fast – I enjoyed the thrill while it lasted and the car was well prepared and the situation chosen so that the odds of an accident and a speed camera were small, but I always had a nagging nervousness that an unexpected but potentially possible crash (or a fine) would be a serious one!
Of course, I am much older and more sensible now, so take a more prudent view to both investing and driving ;-).
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