Thinking globally has paid off
Investing globally proved to be the right approach in September
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With summer coming to an end, and investors returning to their desks, it looks like they decided to have another look at how they were positioned and take profits. This led to falls in some markets and sectors, as they adjusted their investments.
Tech investors take profits
The tech sector appears to have come under particular scrutiny. Technology companies globally fell by over -10% in the seven days between 2 and 8 September. This was particularly difficult for the US stock market where a large number of technology companies are listed, and the S&P 500 was down -3.8% over the month.
We don’t think this is the start of a prolonged decline in markets. Short-term market falls are a fact of life for investors, particularly after periods of outperformance. Technology company returns have been particularly impressive since the markets fell in March, rising by 60% between 1 April and 31 August this year. These strong returns will have encouraged investors to take some profit and reallocate the money elsewhere.
(Performance data in US dollar terms, including income. Technology companies represented by MSCI World Information Technology Index.)
The benefit of being big in Japan
While most markets caught the tech jitters at the start of the month, Japanese stocks stayed relatively stable and managed a positive return in September. We increased our investment in Japan in May, and this extra exposure has been helpful for our performance this month, offsetting some of the losses in other markets.
When we added to Japan, our confidence had been boosted by the Japanese government’s response to the pandemic and a substantial economic stimulus package they had put in place .
These have continued to work in Japan’s favour. Japan’s dip in Gross Domestic Product growth – a key measure of economic activity – has been relatively shallow, and while the country saw a spike in new COVID-19 infections in August, overall levels of infection have been low by international standards.
Coutts investments find a course through jittery markets
Even with equity markets in retreat, none of our portfolios or funds showed an overall negative return in September.
Defensive portfolios produced the best return over the month, thanks to a higher allocation to government bonds as investors shied away from risk, ending the month up by 0.7% on average. Growth portfolios, with their high allocation to equities, struggled but managed to hold their value with a flat return of 0.0% on average, while the average balanced portfolio was up by 0.3%.
Over three and five years, returns remain positive. And as the performance charts show, we’ve also outperformed the industry averages for similar strategies over the longer-term consistently, demonstrating the effectiveness of our investment decision making.
Of course, you shouldn’t rely on past performance as an indicator of future returns. Prices can go down as well as up and you may not get back the initial amount you invested. For further context of long-term performance, please refer to the performance charts at the end of this article.
Cumulative returns calculated on sterling basis, including fees, charges and income to 30 September 2020. These data are based on composite performance, individual portfolio monthly returns are asset-weighted based on their respective asset values at the beginning of the month. Peer group returns provided by Asset Risk Consultants (ARC); end-September data represents ARC estimate. Past performance should not be taken as a guide to future performance. 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. Sources: Coutts & Co, ARC. October 2020.
THE IMPACT OF FEES AND CHARGES
While the cut and thrust of market moves tends to dominate investor attention, it can be easy to underestimate the impact that fees and charges can have on your investment gains.
With this in mind, Coutts has recently reduced and simplified our charging structure.
From 1 October, the maximum platform fee you’ll pay has fallen to 0.15% a year from 0.35%. And whether you invest with us online or with the support of an adviser, the same platform fee tariff now applies across the board, making it easier than ever to choose the best option for you.
We’ve also reduced the maximum ongoing charging figure (OCF) for our Online Investing funds, to 0.5% a year from 0.6%.
These reductions mean that more of the money you invest ends up being reinvested to help grow your wealth.
Looking ahead to the fourth quarter
We have a positive view for equities into 2021, but there is clearly some of what investors call ‘event risk’ on the horizon.
We are expecting markets to move around in the months ahead as the ups and downs of the coronavirus and economic fallout continue to affect investor sentiment.
The outcome of the US election early in November could also lead to some repositioning by investors. Read our latest views on how the result might affect investors here.
For the UK, the 31 December Brexit deadline looms large. While we still expect a deal to be agreed, the value of the pound could move sharply which will impact returns from investments in non-sterling assets for sterling-based investors.
Past performance should not be taken as a guide to future returns. Portfolio performance figures are composite returns from the actual portfolios of all clients calculated in sterling, shown on a total return basis and quoted net of all fees. For the composite portfolio performance calculation, individual portfolio monthly returns are asset-weighted based on their respective asset values at the beginning of the month. Benchmarks represent a static mix of equities and bonds in proportions relevant to each strategy. Source: Coutts & Co, October 2020.