15 Jul 2020
10 July 2020
Jupiter Independent Funds Team
The Covid-19 virus continues to whistle its way through developing markets at lightning speed, as well as more than thirty of the mainly southern and south-western states in the US seeing an upsurge (daily new cases in the US have reached 63,000; in context that is 13,000 more per day than a week ago). When Coronavirus first broke out, there was a widely held belief that, like the flu virus, Covid-19 might be naturally suppressed by heat and sunlight (a contributing factor to flu outbreaks being rare in summertime). The fact that Covid-19 is now going through hot regions, both temperate and arid, like a dose of salts, either debunks the thesis, or at least demonstrates that other more powerful epidemiological forces are at work.
We have discussed before in these updates the deteriorating relationship between the West and China. This week saw another icy layer applied to the developing permafrost. On Monday, President Trump announced sanctions against any company, country or institution engaging with Huawei. On Tuesday the Chairman of the FBI made a keynote speech, spelling out with crystal clarity for those who have not yet quite understood, that China’s aim is to the be the leading global superpower on every level, and it is the biggest single security threat facing the United States. Simultaneously, British Foreign Secretary, Dominic Raab, unveiled the UK’s own new sanctions regime; although China is not explicitly one of those on the first rung of the naughty-step (so far reserved for miscreants including Russia and Saudi Arabia, which given the latter is one of the UK’s key strategic allies in the Middle East, might come as an unwelcome surprise to the Kingdom), there is considerable pressure being applied to see China included. If our mutual relationship was not already simmering in the light of the UK’s response to China’s new security laws being applied to Hong Kong, and speculation that the government is reconsidering both the position of Huawei in the context of the UK’s 5G mobile telephony development and the possibility of rescinding the commitment to Chinese investment in our new fleet of nuclear power stations, the Chinese ambassador to the UK responded in kind with a thinly veiled threat that the UK would be making a “grave mistake making an enemy of China”.
In the UK, Chancellor Rishi Sunak’s summer statement gave his ‘Magic Money Tree’ another good shake: yet another round of Covid-19 recovery measures, including business incentives to retain young, furloughed employees, temporary reductions in stamp duty and VAT on specific goods and services to help both the housing and hospitality sectors, and a £10 per head subsidy once a week for eating out. This adds another £30bn to the £350bn the crisis is already costing the Treasury. But an inkling of times ahead and how the government’s programmes might be part-funded was hinted at in reports that Sunak has asked all government spending departments (certainly with the exception of the NHS, possibly education too) to prepare for a 5% budget reduction. Nobody’s even whispering the word ‘austerity’, for that was officially ended by Mrs May in 2018 and a return to it would be a political gift to Labour; but as the enormous bills come in and the bean-counters see what remains in the coffers amounts to little more than small change, out come the sharp pencils.
As the Brexit talks continue, with chinks of light appearing in sensitive areas such as fish, a significant and much more economically important concession seems to have been worked in the UK’s favour. One of the biggest risks from Brexit is an erosion of the UK’s position as one of the leading centres globally for the settlement of currency, commodities and bond trades. Rival European cities, notably Frankfurt, Milan and Paris have harboured deep resentment at what they perceive to be London’s clearing hegemony, even for euros and euro-denominated bonds (trading and clearing are inherently interlinked, as is the convenience of their geographic proximity, however sophisticated interconnecting electronic systems are). EU institutions will continue to have access to London clearing on a “time-limited basis” beyond 1st January 2021; so long as London can continue to provide a superior service and handle the vast volume of traffic in a way no other rival can, it has the opportunity to retain its competitive leadership in a little-known but very important facet of the British economy.
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 conditions have indeed been challenging these past few weeks; pleasingly, the Jupiter Merlin Portfolios have held up well in the circumstances.
Please note: Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances.
Fund specific risks: The NURS Key Investor Information Document, Supplementary Information Document and Scheme Particulars are available from Jupiter on request. The Jupiter Merlin Conservative Portfolio can invest more than 35% of its value in securities issued or guaranteed by an EEA state. The Jupiter Merlin Income, Jupiter Merlin Balanced and Jupiter Merlin Conservative Portfolios’ expenses are charged to capital, which can reduce the potential for capital growth.
Important Information: This document is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This document is for informational purposes only and is not investment advice. Past performance is no guide to the future. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Holding examples are not a recommendation to buy or sell. Quoted yields are not guaranteed and may change in the future. Issued by Jupiter Unit Trust Managers Limited (JUTM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ which is authorised and regulated by the Financial Conduct Authority. No part of this document may be reproduced in any manner without the prior permission of JUTM. 25880