20 Oct 2020
16 October 2020 | Jupiter Independent Funds Team
Covid! It is impossible to escape the subject, if not the virus itself. With virtually wall-to-wall coverage in the media, whether the focus is on infection and hospitalisation rates and daily deaths, or the increasingly rancorous and polarised political divisions which accompany every facet of every discussion about how best to mitigate simultaneously against the virus’s spread and breaking the economy, it is not surprising it is a national preoccupation.
The UK government’s new tiering system, implemented in England, has within a few days of launch already seen more areas with the intention of being designated Tier 3 (the highest risk, subject to the greatest curtailments) and London is moved up to Tier 2 (high risk; oddly, Tier 1, the bottom level, is deemed ‘medium’ risk, apparently ‘low’ risk is not an option in this asymmetric attribution of risk). We are not alone in our experience. Chiming uncomfortably with February and March, Covid-19’s resurgence is making similar headlines around the world. In France, Paris and nine other major cities are facing new, stringent hospitality and congregation curfews; Madrid has declared a city-wide state of emergency, as has the entire Czech Republic. Holland, Peru, Chile, New York, even Germany: it is an expanding list of countries, regions and cities battling in their own ways with trying to contain the autumn resurgence in Covid cases while central governments are all trying to avoid being the first to reimpose a full national lockdown, despite opinion polls in many western democracies showing a majority in favour of robust action. Even China is not immune despite General Secretary Xi’s recent public medal ceremony to honour those he said who had ‘defeated’ the virus; following a handful of cases in Qingdao, a decree has gone out that all 9 million inhabitants of the city will be compulsorily tested within 5 days.
This week the IMF issued a stark warning about the health of the global economy, predicting a 4% decline for 2020. In fact, a consensus of around 5% shrinkage formed early in the first wave of the virus and has remained remarkably stable since. With only 10 weeks of the year remaining the consensus is unlikely to change much. However, the high frequency data which economists track (including passenger transport numbers, traffic congestion, credit card usage, electricity consumption etc) was already pointing to a gradual deceleration in activity levels, if not a reversal, as the disease began to reassert itself from mid-September. As economic forecasters still debate the geometry of the 2021 recovery, invoking many letters of the alphabet to illustrate their own view of the shape of the curve (V? U? L? W? K perhaps?), the immediate concern is whether the widely if differing curtailment of freedoms over the winter months will push further meaningful recovery back to beyond the first quarter of next year.
In the UK, the position is complicated by Brexit as the hard deadline of 31st December rapidly approaches when, with or without a trade agreement, the UK will conclude the divorce transition. Impasse has been reached with deadlock on sovereignty (fish) and competition (state aid), on which strength, rebuffing Angela Merkel’s pleas not to withdraw, the Prime Minister has declared further talks with the EU as ‘pointless’, preparing instead for an ‘Australia-style approach to global free-trade’. We can offer no insight as to whether a mutually agreeable solution may yet be found in what little time remains, or whether this really is it, the talks are dead and buried. Brexit is a subject in which of course we are naturally greatly interested, but as global investors we are not obsessed with it. Among many preoccupations such as the state of the global economy or the outcome of the impending US election and its ramifications, Brexit and its aftermath is just one more to ponder.
Amid all this, many markets remain relatively sanguine. After a volatile third quarter session, the broad-based US S&P 500 Index is within touching distance of its all-time high recorded on 2nd September 2020 and stands 7.8% up on the beginning of the year. The Japanese Nikkei 225 has also been testing recent highs (though not all-time highs: Japan’s stock market has yet to exceed the bubble value it reached in 1991, nearly three decades ago!). The UK’s FTSE 100 Index on the other hand is a laggard, despite recovering 16.8% since the March 22nd low point for this year: not only is it not testing its May 2018 all-time high, at its current level it is 22.7% down year-to-date and is even below October 1999 levels.1
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.
1All data sourced from Bloomberg, in local currency, to 15.10.2020
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.
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