09 Oct 2020
2 October 2020 | Jupiter Independent Funds Team
Covid continues to make waves and the news remains dominated by it. Economic recovery depends on the ability, the propensity and the inclination of people to return to work and resume normal patterns of consumption. Underpinning all is that word ‘confidence’.
Prime ministers, princes, proletarians, paupers and presidents: the virus has not finished with any of them or us yet. President and Mrs Trump have both tested positive for Covid-19. There are fewer than five weeks to go before polling day in the US Presidential election and the incumbent, pitching for a second term, is hors de combat and in quarantine for at least 10 days (and that’s assuming no serious illness). The US stock market fell 2% on the news. At the time of writing it is unclear as to how this will shape events and there seems little value in speculating on it.
But Covid continues to make waves and the news remains dominated by it. As well as what is only too obviously apparent in the US with the Trumps and in the UK with wall-to-wall Covid coverage, the situation is little different in countries such as France and Spain. Further afield in Latin America the virus is now proceeding almost unchecked through Peru and Chile and, in Asia India is still under the Covid cosh.
From an economic and investment standpoint the constant dominance of the virus story is still very relevant. As the initial nationwide lockdown measures were relaxed in May, the Bank of England’s chief economist, Andy Haldane, was optimistic the UK economy would achieve a sharp, V-shaped recovery extending in to 2021. Indeed, the real-time data (retail habits, credit card spending, traffic congestion, electricity usage etc) were supporting the idea that however acute or shallow the slope, recovery was at least evident. But uncertainty is creeping in again and only this week he warned against “Chicken Licken” pessimism, reassuring us the sky is not going to fall on our heads. What he was referring to was the constant stream of bad news and the sapping effect on consumer confidence leading to a reversal of economic fortunes. In other words, he was warning that rather than a V-shaped recovery, we could quickly talk ourselves into a W-shaped economic pattern.
Economics is littered with theories and supposedly immutable laws. But for all the assumptions supported by complex formulae, at its core economics is no more than the sum of human activities at the interface of the demand and supply of goods and services and the structures which surround them, all with pounds, dollars, yen, euros and any other currency on the front. Covid-19, extraordinarily, has disrupted both the supply and demand sides of the economy globally and in a very short period. Complicating the UK’s outlook is the uncertainty over a Brexit trade deal with the EU (but at least one way or the other the certainty of a tariff-free trading regime or trading with Europe under WTO rules will be crystal clear by 31st December, if not before).
Recovery depends on the ability, the propensity and the inclination of people to return to work to re-build the supply-side of the economy, and at the same for people to be willing or to feel secure enough to resume normal patterns of consumption of those goods and services to restore health to the demand-side. Underpinning all is that word ‘confidence’. Confidence is ephemeral, intangible, fickle and fragile; it can take a long time to build and may be shattered or undermined in a trice. Confidence is a function of leadership: good leadership inspires confidence; poor leadership on the other hand has a debilitating effect. It is a shame confidence cannot be bottled and sold as some form of economic elixir. Sadly, that’s not how real life is!
The Jupiter Merlin Portfolios are long-term investments; they are certainly not immune from market volatility, but they are expected to be less volatile over time, commensurate with the risk tolerance of each. With liquidity uppermost in our mind, we seek to invest in funds run by experienced managers with a blend of styles but who share our core philosophy of trying to capture good performance in buoyant markets while minimising as far as possible the risk of losses in more challenging conditions. The recent conditions have indeed been challenging; pleasingly, the Jupiter Merlin Portfolios have held up well.
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