Markets in a Nutshell - July 2020

Global equities continued to surge as lockdowns eased, belying expectations for economic recovery to be slow and laboured (the World Bank expects global GDP to contract by 5.2% this year in the fourth-deepest recession since 1900). Unprecedented global central bank actions and government fiscal stimulus have suppressed yields and propelled equity markets higher.

US markets rose despite a second wave of infections as stimulus helped consumption. May retail sales surged over April while the US unemployment rate dropped to 13.3%. European bourses also moved higher as the ECB expanded its bond buying program by €600 billion to €1.35 trillion, extending its duration to at least June 2021. Emerging markets outperformed, buoyed by China as its economy continued to normalise with the manufacturing sector expanding for the fourth consecutive month.

The Foord International Fund continues to perform well in absolute and relative terms. In June, security selection bolstered returns ahead of the broader market gains, but was somewhat offset by the fund’s US hedge positions (which fall in rising markets). Leading Hong Kong retail property developer Wharf REIC contributed the most to fund returns despite political instability in the city.

The Foord Global Equity Fund continued to generate alpha, driven by stock-specific catalysts such as Bayer which gained after settling most of its litigation claims for $11 billion, allowing management to focus on core operations. Core holdings in Chinese internet consumer companies Tencent and JD.Com also moved sharply higher, contributing to the fund outperformance.

Looking forward, at best the path to economic recovery is indeterminate as global COVID-19 infection rates accelerate and several US states and parts of other countries pause or reverse reopening plans. As such, the managers remain cautious with high levels of liquidity. The funds retain the S&P 500 hedges to protect against the elevated risks in the expensive US market.