The recovery in equity markets that began a month ago continued during the week, with UK the FTSE 100 Index rising 1.9% and the US S&P 500 Index 2.3%. We also saw a strong performance from Europe where the Euronext 100 Index rose 3.7%. Oil remained very much in the news with supply still far outstripping demand and a shortage of storage space. In normal circumstances the 65.5% fall in the price of a barrel of Brent crude oil over the past year would provide a very powerful stimulus to the economy but with activity suppressed its impact so far has been limited.
As the end of the month approached we carried out our usual monthly review of asset allocation, deciding to reduce our exposure to property, which was broadly in line with the industry benchmarks. While there are individual companies that will be able to exploit the ‘new normal’ world, the outlook for rental yields outside prime property is blighted by the prospect of oversupply and uncertainty over how firms will operate in the ‘new normal’. There is a very real prospect that returns will stay lower for longer. We also decide to add to gold positions, largely to provide a larger hedge against the risk that the enormous stimulus packages might lead to a loss of confidence in money and to inflation but also to hedge the risk that equity markets may fall again should recovery to ‘new normal’ take longer than expected.
Following rallies of more than 20% in major equity markets from March lows this modestly increases the defensiveness of our central asset allocation, with investment managers able to tailor individual portfolios to reflect their knowledge of the client’s needs and agreed objectives.