Economic news boosts investment returns in June

Returns were less emphatic than in April and May and there were some market wobbles over the month. For now, however, markets seem inclined to climb the COVID-19 wall of worry, with concerns over the spread of the disease in the US and some emerging markets offset by hopes for a vaccine and therapeutic treatments.

The MSCI UK Index returned 1.5% – compared to 3.1% in May – but is still down -17.7% since the beginning of the year. This is substantially behind other developed markets. The MSCI USA, for example, is down -2.5% so far this year and the MSCI Europe is down -9.2%. Emerging markets did particularly well in June, thanks to the improving economic picture and a weaker US dollar. (All returns are total returns, in local currency.)
 

Economic data has been better than expected

Economic news has generally supported equity markets. The Citigroup Economic Surprise Index has been at record highs recently, indicating that data in the US has been better than expected. Similarly, Andy Haldane at the Bank of England has suggested that UK consumer spending has been on the rise since April, thanks to policy packages supporting underlying incomes.

The positive economic news has also been helpful for bonds. Government bonds were more subdued than earlier in the year when investors were running for cover, while corporate bonds – often referred to as credit – have been positive.
 

Positive markets continue to add to investor returns

For investors, another positive month went some way to mitigating losses earlier in the year. The average Coutts Balanced Portfolio, for example, was up by 1.5%.

When markets started falling in March we acted to reduce the amount of shares in our funds and portfolios, but as investor confidence returned, we’ve been adding to equity to benefit from market gains. As a result, the average balanced portfolio has recovered most of the losses experienced earlier in the year, and is now down -2.2% since 1 January 2020.

As ever, though, it’s important to remember that past performance is not an indicator of future returns. See the tables at the end of this article for further context of long-term performance.
 

Cumulative returns calculated on sterling basis, including fees, charges and income to 30 June 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-June 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. July 2020.
 

The importance of sustainable businesses

Over 2020 we’ve acted to strengthen our responsible investing process by using index tracking funds that apply environmental, social and governance (ESG) metrics to weight exposure. When we added to our allocation to Japan in May, for example, we did so through a fund that tracks the MSCI Japan Index with an ESG overlay to support our sustainability targets.

Responsible investing has been a benefit during the current crisis and low-carbon tracker funds have outperformed their base indices. Companies with strong ESG characteristics typically have stronger balance sheets, good employment policies and better risk management, all of which help to preserve shareholder value. Moreover, low-carbon tracker funds don’t have much exposure to the energy sector, which has suffered during the crisis, but do invest heavily in technology, which has benefitted.

Find out more about our approach to responsible investing in our latest sustainability report.

Political clouds gather on the horizon

Looking ahead, politics is raising its head again. The Brexit clock is now ticking in the UK, although we still think it’s possible that a last-minute deal may be reached.

In the US, meanwhile, the Presidential election is gearing up for the November ballot. Current polling suggests Joe Biden – Barack Obama’s former Vice-President – is building a lead. Markets don’t seem to be concerned by the prospect of a Democratic win as yet, but we may see some reaction as the date draws near.

While the COVID-19 pandemic has been the major mover of markets so far this year, we understand the importance of keeping the future in view. Maintaining a steady eye on upcoming risks and opportunities is a key part of our investment process.
 

Investment performance

Past performance should not be taken as a guide to future performance. 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 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, July 2020.

When investing, 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.