News and stories

Portfolio Review – May 2020

Issue 03_OFNPM_Portfolio-Review_May-2020

Portfolio Review – May 2020 – Issue 03

This is the latest One Four Nine Portfolio Management (OFNPM) portfolio review providing investors and advisers with an easy to digest overview of what’s happening in the markets globally, alongside comparisons of OFNPM’s portfolio performance each quarter and throughout the year.

Chief Investment Officer’s comments

In the long-term equity markets are driven by fundamentals.

What I mean by fundamentals is that equities can be valued based on the current dividend they pay and their long-run earnings growth.  It is growth in earnings that drives long-term equity valuations.  In the short-term, markets are driven by fear (possibly loathing) and hope.  The long-term is analytical, objective to a certain degree, while the short-term is emotional.  It is the short-term that delivers volatility in the market, but it is the long-term that delivers returns.

Since 1969 world stock markets have returned 4% per annum in excess of inflation.  We can view the stock market as a perpetual inflation
linked bond, with a real coupon of around 4%, but also with an option to derail that return by considerable margins in the short-term.  And as we are long-term investors, it is this return that interests us and informs our long-term strategic allocation to the equity market.

Short-term trumped long-term

In May we have seen the short-term trump the long-term fundamentals.

On the face of it the economic conditions are appalling.  We have witnessed record increases in unemployment, record falls in GDP, record falls in industrial and manufacturing output and record falls in business and consumer confidence.  There are whole sections of the economy where there are not just falling earnings, but no earnings at all.  We have seen in the UK and around the world companies slashing dividends and giving bearish guidance going forward on future earnings growth.

And yet May saw significant positive returns from equity markets.  In the US, UK, Japan and Europe markets were up over 5%, and this on top of a substantial rebound in April.


And why is this?

Because the markets are hopeful.  Hopeful that central bank and government actions both on a monetary and fiscal basis will mitigate the worst of any economic downturn.  Hopeful that somehow the virus is in retreat in Europe and Asia, and to a certain extent North America, and that economies, and consumer confidence, will bounce back.  Hopeful that newer technology-based companies will lead the move forward in markets.  Hopeful that some return to normality, although adjusted, is around the corner.

And this hope has not just manifested itself in the stock market, but in commodity markets too.  Oil having for a day in April turned negative rallied to just under $35 a barrel from near $20 at the end of April.

Caution is the watch word

The question is, can the market hold on to these gains?

The market is welcoming a cautious reopening of western and Asian economies, and it is hoping that in turn this leads to a quicker than anticipated recovery in global earnings, economic activity and consumer confidence.

Investors seem to think that earnings will rebound in quick order, otherwise the market would be substantially lower.  It is likely that the market has already priced a recovery in, so I would not expect significant moves ahead from here and there is still a significant probability of another leg down.

Globally the virus is far from under control.  Countries like Brazil and now India are seeing rapid increases in the rate of infection.  While in Europe we have seen the rate and prevalence fall we are in a minority alongside some Asian countries.  The US are seeing an increase in the average number of new daily cases, just as the economy opens back up.  The risk is that as economies open back up the virus regains ground and we head back into lockdown.  This would be catastrophic for markets.

Caution should still be the watch word.

Portfolio comparison

During May your portfolios posted significant gains.  The Active portfolios slightly underperformed the passive portfolios.  Both sets of portfolios were substantially ahead of the ARC estimates for May.  All our funds across all asset classes posted positive returns for May.

The table below shows the performance of our Active and Passive range of portfolios alongside the ARC PCI estimates for May.

OFNPM PortfolioActive PortfolioPassive PortfolioARC PCI Index
OFNPM Defensive1.91%2.27%1.70%
OFNPM Cautious2.35%2.68%1.70%
OFNPM Balanced3.43%3.70%2.30%
OFNPM Growth4.26%4.46%2.70%
OFNPM Adventurous5.14%5.27%2.90%
FTSE All Share3.42%
MSCI World GBP6.96%


The table below shows the performance of our portfolios for the year to date.  Over the year thus far the active portfolios have significantly outperformed the passive portfolios, and they have both outperformed the ARC estimates for the year.  About half of our funds have made positive returns this year, most notably Fundsmith, Troy Trojan and Lindsell Train Global Equity.  All our credit funds are now positive and even the US tracker we use, Vanguard US Equity Index, has returned 0.9%.

OFNPM PortfolioActive PortfolioPassive PortfolioARC PCI Index
OFNPM Defensive-1.32%-2.13%-2.34%
OFNPM Cautious-1.78%-3.25%-2.34%
OFNPM Balanced-1.89%-4.55%-5.14%
OFNPM Growth-2.81%-6.69%-7.22%
OFNPM Adventurous-2.98%-8.41%-9.06%
FTSE All Share-18.76%
MSCI World GBP-1.63%


Final thoughts

We continue to hold our nerve in these most trying times.

With volatility still well above its long-term average now is not the time to be trying to time the market in or out.  Your long-term strategic asset allocation will do the heavy lifting from that point of view and our underlying funds are invested in good quality, low leverage, strong companies, which offer the best probability of weathering this storm.  And the evidence so far is that they have done a sterling job.

Find out how One Four Nine Portfolio Management invest here.

Dr Bevan Blair,

Chief Investment Officer,

One Four Nine Portfolio Management

London, Tuesday 16 June 2020.

The value of investments and the income from them may go down as well as up.  You may not get back the amount you invest.  The return may increase or decrease as a result of currency fluctuations.  Past performance, or any yields quoted, should never be considered a reliable indicator of future returns.

All data is at 31 May 2020.  One Four Nine Models are benchmarked against UK CPI and any other benchmark has been displayed for comparative purposes only and is not a benchmark for the Models.  Performance figures are net of underlying fund fees and include One Four Nine Portfolio Management’s Management Fee of 0.24% (including VAT).  All model portfolio performance data is sourced from One Four Nine Portfolio Management.  All other data is from Bloomberg and Morningstar.

This service is intended for use by investment professionals only.  This document does not constitute personal advice.  If you are in doubt as to the suitability of an investment, please contact your adviser.

One Four Nine Group Limited Registered in England No: 11866793.  One Four Nine Portfolio Management Limited is registered in England No: 11871594 and is authorised and regulated by the Financial Conduct Authority (FCA) FRN: 931954.  One Four Nine® is a registered trademark.

The question is, can the market hold on to these gains?

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