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Stock market investors have moved on from the pandemic even if out in the real world it is far from mission accomplished. It cannot be overstated what an extraordinary period in the markets this has been. From an investment perspective it is as if the last 15 months never took place.

However, it is clear that shares are a great deal less exuberant than they were during the hope phase of the cycle last year. Markets are now grinding higher rather than racing ahead as investors weigh up the pros and cons. For those of us who remember the recovery from the financial crisis in 2009 and 2010 the similarities are striking - and a bit worrying.

Then, a very similar V-shaped recovery from the low point of March 2009 turned into a 16% correction over the summer of 2010. Investors lost their nerve as they sensed a mismatch between the rise in valuation multiples and the absence, yet, of the earnings growth that would justify that re-rating. We cannot rule out a re-run of that this year.

In particular, inflation is back on investors radars, with even the resolutely dovish Fed admitting that prices are rising faster than it had expected. Some valuations, notably of cyclical companies that thrive in an economic recovery, are starting to look a bit stretched. Perhaps most concerning is the fact that we have now run for nine months without a pull-back of more than 5% in global stocks and 16 months since we had a 10% correction or worse. In the past 30 years we have had around 50 retreats of at least 5%. We should expect one at some point soon.

However, there are still plenty of reasons to remain fundamentally bullish. First, fiscal and monetary policy are both supportive. Second, shares are cheap versus less risky assets like bonds and cash. Third, the economic cycle still has room to run before it represents a headwind for shares. Shares don’t normally peak until full employment has been reached and the output gap closes.

Fourth, the corporate earnings cycle is still positive. It will be harder for companies to beat expectations from here, but forecasts are still strongly positive. Fifth, the market is behaving itself. The air is coming out of individual bubbles (renewable energy, bitcoin, meme stocks) without apparently causing more widespread concern.
And finally, bonds and shares are acting in a similar way (correlated to use the jargon) so many investors are asking why they should put their money in an asset class that offers such poor returns without any diversification benefits. There’s plenty of money currently parked in fixed income that could find its way across into the equity market.

Select 50 fund picks: Investors looking for well-managed global equity funds in the Select 50 are spoilt for choice. Some of our best managers are to be found in this category and we have a decent spread of investment styles to choose from or to mix and match. We like Jeremy Podger’s Fidelity Global Special Situations Fund and James Thomson’s Rathbone Global Opportunities Fund in particular. Brown Advisory US Sustainable Growth Fund offers a US-biased alternative. Income seekers might look at Fidelity Global Dividend Fund. Before you invest in a fund, please ensure you have read Doing Business with Fidelity and the Key Information Document (KID) relevant to your chosen fund.


The bond market is where the big investment question of 2021 is playing itself out. Will the inflationary impulses that we are seeing everywhere prove to be short-term and self-correcting - transitory to use the Fed’s preferred terminology - or represent the start of a more worrying period of persistently higher prices?

Key to this debate is the credibility of the world’s central bankers. On either side of the Atlantic central banks are determined to nudge expectations towards the belief that the retreat from monetary accommodation can be slow and managed. During the first three months of the year they were fighting a losing battle; more recently they seem to have gained the upper hand again.

So, while year to date returns for government bonds have been negative, they have only been modestly so. So far, we have avoided a 2013-style Taper Tantrum. The so-called dot plots, showing rate-setters’ expectations for the future direction of interest rates, have brought forward the forecast of when hiking will begin. However, the market largely took this in its stride, pleased that the Fed looked increasingly on top of matters and was unlikely to let inflation rip.

So, government bonds look stable. Corporate bonds look more vulnerable because investors’ hunger for yield has driven them to valuations that we have rarely seen in recent years. The extra yield offered by corporate bonds compared with much safer government paper is almost non-existent. Investors are making heroic assumptions about companies’ risk of default in their desperation to squeeze out that little bit of extra income.

The fundamental picture for credit is supportive, with company earnings growing fast from last year’s low point. But no-one should imagine that spreads can tighten much from here. Investors are always going to require some extra yield to compensate them for the higher risk of lending to a company rather than a government. So, the only way that corporate bonds will offer more to investors than their income is if government bond yields fall. That looks implausible in the absence of an, unlikely, return to widespread lockdowns.

The other reason to be cautious about bonds generally is the increasing correlation between fixed income and equity returns. If the two behave differently an investor can always make the case for holding bonds as a diversifier in their portfolio. If bonds simply mimic equities, it is hard to argue against going all-in to the stock market while the recovery continues.

Select 50 picks: In the current environment, the most attractive part of the bond universe is probably inflation-linked. The ASI Global Inflation-linked Bond Fund could offer some support in an environment of rising inflation. Before you invest in a fund, please ensure you have read Doing Business with Fidelity and the Key Information Document (KID) relevant to your chosen fund.


Commodities has been the best performing asset class in the first six months of 2021, as economies have re-opened and demand for both energy and industrial metals has soared. That short-term boost has built on firm longer-term foundations, with talk of another commodity super-cycle becoming increasingly frequent.

Super-cycles are not common but when they do arrive they can persist for many years. Typically, they require a structural shift in demand for raw materials rather than simply a cyclical upturn in the economy. In the past these have included the industrialisation of the US in the 19th century, recovery from the second world war in Japan and Europe, the widespread adoption of the motor car and the growth of aviation.

This time, commodity bulls are focused on two driving forces. First, the political shift from austerity to fiscal stimulus, investment and social inclusion. This has the potential to trigger a long overdue rebuilding of the crumbling infrastructure in many developed countries, notably the US. Second, and related to the first, is the urgent need to combat climate change, which will require massive spending on green infrastructure.

Obviously, this has more positive implications for industrial metal prices than for oil in the long run. Shorter-term, of course, different factors come into play. The copper price had doubled since the worst of the pandemic slump last year, so it is unsurprising that it has corrected somewhat in recent weeks. The oil price has continued to surge, as OPEC producers have limited supply.

Gold marches to a different beat. Its price is determined by a variety of factors, including safe haven demand, inflation fears, the level of the dollar and real interest rates. The rise of bitcoin stole its thunder; the cryptocurrency’s recent retreat may now give the yellow metal a boost.

All that glisters is not gold

Source: Refinitiv, 30.6.21, rebased to 100 as at 1.1.21, total returns in USD

(as at 30 June)
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
Copper 19.2 14.8 -2.9 -23.9 77.9
Gold 1.3 6.1 -2.5 21.6 8.7
Oil (Brent Crude) 33.8 32.6 -1.6 -78.1 327.7

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment.


Property has been the second best performing asset class in the first half of 2021 after commodities, as social distancing rules have been progressively eased and we have been able to think about getting back to work, into the shops and out to enjoy ourselves again.

What is clear, however, is that we are not simply going back to how things were before. Talk of everything changing for good is overdone. We are probably not witnessing the death of the city or the end of the office. However, it is plausible to argue that a decade of change has been compressed into a year or so. The world we return to may look familiar, but it will be different in crucial ways.

The chart here is interesting. It suggests that demand for office space is bouncing back as it did after the financial crisis and before that in the wake of the boom and bust. It is entirely possible, however, that we never need offices in quite the way we did before the pandemic. We have shown that for many people work is now likely to be a hybrid affair in which we collaborate face to face and do the ‘real’ work at our desks at home.

The property world is in a state of constant flux. The growth of online shopping creates demand for warehouses, while work from home disperses the centre of gravity of a city. Towns should become less zoned as we work and amuse ourselves closer to where we live. Perhaps most importantly, the property business is running hard to catch up with a climate aware world in which it is currently part of the problem not the solution.

And, in the meantime, real estate continues to offer investors a relatively high (although recently not so secure) income. As a diversifier and source of yield, property has a place in a portfolio, but quality of tenant, selection of manager and choice of sector have never been more important.

Will we really go back to the old ways?

Source: Refinitiv, 30.6.21.

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