Balanced ETF portfolios GBP Q4 2020 commentary
| Asset classes | Stocks (developed and emerging equity), bonds, non-traditional |
| Instruments | ETFs |
| Investment style | Macro, diversified investment focus |
| Quarterly return (net of fees) | |
| Defensive | 1.5% |
| Moderate | 3.6% |
| Aggressive | 4.9% |
Market overview
Global equities finished the year on a strong footing amidst positive vaccine news, and agreements regarding a Brexit deal and a pandemic relief plan in the US. Developed markets were up 3.5% in local currency terms and 4.3% in $ terms. Emerging markets gained 6.1% in local currency terms and 7.4% in $ terms. The USD ended the month down 2.1% as investors expect the Fed to keep interest rates low. Moreover, markets are optimistic regarding a recovery from the COVID-19 pandemic, which could make the greenback a laggard against other major currencies. Within fixed income markets, US treasuries ended the month down 0.3% while UK gilts ended the month up 1.6%. The Euro ended the month up 2.3% against USD as the latter depreciated and the EU entered into an investment agreement with China that will provide European businesses with preferential treatment compared to US companies. Sterling climbed 2.4% against USD over the month as the UK and the EU agreed on a Brexit deal.
A new and more infectious strain of the COVID-19 virus was discovered in the UK. As a result, many countries barred flights from the UK and strict lockdown measures were imposed within the country. On the economic front, the composite PMI for the UK came in at 50.4, above last month’s 49. The increase was led by the manufacturing sector while service sector activity declined once again due to falling demand and trade restrictions amidst the COVID-19 pandemic. Additionally, the unemployment rate for the three months to October came in at 4.9%, above 4.8% in the previous period, as the labor market continues to be under pressure as a result of the pandemic.
Within fixed income, 10-year government bond performance was muted in developed regions except for the US, UK and Italy. Hopes of economic recovery and an agreement regarding a stimulus deal led treasury yields to move modestly higher. With more stringent lockdown measures imposed in the UK, gilt yields declined as economic uncertainty heightened for the nation. Benchmark 10-year yields climbed by 7bps to 0.91% in the US, while they declined 11bps in the UK to 0.2% and 1bp in Japan to 0.02%. Bund yields remained flat over the month at -0.58%. The oil rally triggered by positive vaccine news continued into December. The commodity (Brent) ended the month up 8.8% at $52/barrel. Growing worries about the new strain of the coronavirus have boosted the appeal of safe havens such as gold. Furthermore, the weak dollar bolstered the demand for the precious metal. Gold finished the year strong, returning 24.8% YTD and 7% over December, ending the month at $1898/ ounce.
Portfolio performance
| Returns net of fees | Defensive | Moderate | Aggressive |
| Oct | -1.1% | -1.8% | -2.4% |
| Nov | 1.6% | 3.9% | 5.6% |
| Dec | 1.0% | 1.6% | 1.8% |
| 2020 | 5.5% | 8.9% | 8.7% |
| Since Inception (Oct 2015 - 31/12/2020) | 29.4% | 45.0% | 49.8% |
The multi asset portfolios produced positive returns in Q4 but suffered in October.
Portfolio Allocation and top portfolio holdings (as of 10/11/2020)
Rebalance Commentary and Outlook
The aim of this rebalance was to increase the resilience of the portfolios against the possibility of prolonged volatility after the U.S. election. As such, the investment management team (the “team”) broadly added to longer dated government bonds and reduced exposure to cash proxies. In all the profiles this was implemented by reducing allocations to ultrashort GBP bonds and increasing allocation to long dated GBP hedged US Treasuries.