Virtual Market Update May 2021 COVID-19 six months on • Total cases 10 December 2020 – 68.9m • Total deaths 10 December 2020 – 1.57m • Today… Source: Johns Hopkins University Virus Tracker 2 2021 – Recovery Summary • The vaccine v virus race continues, with new variants the emerging contender • The recovery in the second half of 2021 is likely to be very strong, but unevenly distributed • Leaders in vaccination to be leaders in recovery • Central banks have a herculean task in balancing support with growth and inflation • Long term real return (above inflation) targets become more important • Ongoing cyclical catch up for last year’s losers • Structural shift to sustainable investing remains a key theme 4 Vaccine vs Virus • More than 1.45 billion doses have been administered across 175 countries • The latest rate was roughly 23.7 million doses per day • But does the virus care? Source: Bloomberg Virus Tracker 5 Vaccine vs Virus • Distribution is uneven globally • Wealth and politics have so far dictated the success or otherwise of vaccine distribution Source: Bloomberg Virus Tracker 6 Vaccine vs Virus % of population with at least one dose Has the delay pushed back the recovery? Source: Bloomberg Virus Tracker 7 Major Markets – Pandemic Recovery Source: Morningstar. UK, US, Japan, Europe and Chinese major indices, 18/02/2020-16/05/2021 8 Major Markets – Pandemic Recovery Source: Morningstar. UK, US, Japan, Europe and Chinese major indices, 01/01/2021-16/05/2021 9 China slowdown? Source: Morningstar 10 Asian Epicentre • Asia-Pacific stocks are underperforming global peers as virus cases surge Source: Bloomberg 11 Global Rebound • IMF predicts growth in 2021 will be the most since at least 1980 Source: International Monetary Fund 12 Recovery Leaders – US • Date of inception – 17 May 1792 • Size - $49 Trillion • No. publicly traded companies – 5,500 • The US stock market represents 54.5% of the world stock market capitalisation! Source: statista.com 13 Recovery Leaders - US Source: (Left) BEA, Congressional Budget Office, Joint Committee on Taxation, Refinitiv DataStream. (Right) JP Morgan AM 14 Recovery Leaders - US Source: Refinitiv DataStream, JP Morgan AM 15 Recovery Leaders - US • Large cap vs Mid and Small cap factors Source: Tacit, MM Wealth 16 Recovery Leaders - UK • Parallel Worlds, weeks apart, Israel has been a bellwether case for the UK Source: Bloomberg 17 Recovery Leaders - UK • IMF revised forecasts, saying the UK’s economy would grow by 5.3% in 2021 • The Bank of England now predicts the economy will grow 7.25% this year • Strong vaccination programme – over 60% of UK population first dose, 15% second – economic activity and corporate cash flows are already starting to recover quickly • Unlike pre-GFC, household balance sheets are strong. Consumer savings rates boosted by enforced lockdowns, with pent-up spending to come • But we’re also interested in the dividend outlook for the UK market as a traditional higher yielding market globally • UK government plans to push ahead with the next phase of its reopening roadmap on 21 June, despite concerns about the Indian variant of Covid-19 18 Recovery Leaders - UK • The rotation to value continues Source: Tacit, MM Wealth 19 Active Management JO Hambro UK Opportunities Fund – Change in a crisis Source: Morningstar Direct 20 Active Management JO Hambro UK Opportunities Fund – Change in a crisis 31/01/2020 % 31/03/2020 % 30/04/2021 % Cash 6.13 Cash 19.1 Smith & Nephew PLC 3.39 Johnson Matthey PLC 3.42 National Grid PLC 4.09 Smiths Group PLC 3.27 SSE PLC 3.23 Barrick Gold Corp 3.72 WPP PLC 3.27 Tate & Lyle PLC 3.22 GlaxoSmithKline PLC 3.69 Johnson Matthey PLC 3.26 Next PLC 3.2 Unilever PLC 3.66 AstraZeneca PLC 3.2 Smith & Nephew PLC 3.11 Royal Dutch Shell PLC B 3.48 UDG Healthcare PLC 3.18 Rio Tinto PLC 3.09 PZ Cussons PLC 3.46 Antofagasta PLC 3.13 GlaxoSmithKline PLC 3.09 Smiths Group PLC 3.45 Ashtead Group PLC 3.12 WPP PLC 3.08 Tate & Lyle PLC 3.44 Serco Group PLC 3.12 Ashtead Group PLC 3.07 Serco Group PLC 3.44 IMI PLC 3.11 Cash today? 4.1% Source: Morningstar Direct 21 Recovery Leaders – Value vs Growth • The rotation to value continues Source: Tacit, MM Wealth 22 The Inflation Debate • Excess savings of $2.9 trillion in developed economies over 2020 • If demand outstrips supply, shortages could lead to price pressures • Central banks have reiterated dovish stance • Unemployment • Unprecedented liquidity + positive growth outlook + pent-up demand = raised inflation expectations 23 The Inflation Debate • Higher inflation, not high inflation • A reflection of the expected increase in growth, “transitory” or long term • Headline CPI YoY% not yet a red alert Source: Bloomberg 24 The Inflation Debate • Reflation rather than Inflation? Source: Professor Shiller, Fama-French, Morgan Stanley, GFD, Man DNA 25 The Inflation Debate • The unemployment dilemma for government and central banks Source: National Bureau of Economic Research 26 The Inflation Debate • Companies have been allowed to survive, when they should have failed Source: Coface 27 Outlook – Asset return expectations Source: JP Morgan Multi-Asset Solutions, JP Morgan AM 28 Outlook – Asset return expectations • Property REITs making a comeback? Source: Morningstar Direct 29 Outlook – can the recovery last? • The vaccine v virus race continues, with new variants the emerging contender • The recovery in the second half of 2021 is likely to be very strong, but unevenly distributed • Leaders in vaccination to be leaders in recovery • Central banks have a herculean task in balancing support with growth and inflation • Long term real return (above inflation) targets become more important • Ongoing cyclical catch up for last year’s losers • Structural shift to sustainable investing remains a key theme 30 Q&A Disclaimer Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment. Past performance is not a reliable indicator of future results and forecasts are not a reliable indicator of future performance. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it, to go up or down. The information in this document is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation. MM Wealth is authorised and regulated by the Financial Conduct Authority. Registration Number: 148496. MM Wealth Ltd Wellbrook Court, Girton, Cambridge CB3 0NA 01223 233331 [email protected] We hope you found this presentation of interest and useful. If you have any questions, please do not hesitate to contact us. 32.