Markets in a Nutshell - June 2020
Developed market bourses were again buoyant, led by the US despite rapidly growing unemployment and the Fed chairman warning that more fiscal stimulus would be needed to sustain an economic recovery. Markets were supported by several economies starting to re-open across Europe and Asia together with several companies announcing progress in potential COVID-19 therapeutics and vaccines.
Hopes of a revival in global economic demand spurred industrial commodities including iron ore and copper. The oil price also surged after Saudi Arabia unilaterally pledged to cut another 1 million barrels per day of production, with Kuwait and the UAE also announcing production cuts of their own.
Commodity and oil exporters Brazil and Russia moved higher on stronger commodity prices, but emerging markets in general lagged. China drifted lower after geopolitical tensions escalated with the US over Beijing’s new Hong Kong security legislation and India also declined despite a significant COVID-19 stimulus package. Most emerging markets have limited resources to combat the economic shock.
In contrast to the equity market cheer, developed market bond yields are still anchored at record lows. Deliberate central bank yield curve management strategies through targeted bond purchases have successfully suppressed yields and placed a floor under general market sentiment.
The Foord International Fund’s majority weight in equities allowed meaningful participation in rising equity markets with leading agricultural chemicals manufacturer FMC contributing the most to fund returns. However, despite significant monetary and fiscal stimulus and a gradual reopening of global economies, the path to economic recovery is uncertain. The fund retains the S&P 500 hedges (mostly via put options that protect against falling markets) given the prevailing elevated uncertainties.
Pleasingly, the Foord Global Equity Fund outperformed in the rising market despite its relatively conservative positioning. Core holdings JD.com, IPG Photonics, Wheaton Precious Metals and Activision Blizzard all contributed meaningfully following strong earnings reports.
Markets are likely to stay volatile given the push and pull of unprecedented monetary and fiscal stimulus on the one hand and high levels of uncertainty for the speed and shape of any real economic recovery on the other.
The Foord funds’ positioning allow ample flexibility to navigate these undulations.
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‘Markets in a nutshell’ is Foord Asset Management’s monthly overview of market movements.