November was a fairly quiet month in terms of headlines for global markets, as investors focused on future events expected to unfold in December. Global equities rose 2.4% and 2.5% in US dollar and sterling terms, respectively. US stocks led, rising 3.7% over the month, with emerging market companies the main laggard, ending the month just below where they started. Technology and health care shares were the best performing sectors as bond-sensitive stocks, such as utilities and real estate, struggled.
Government bond markets were weaker as sovereign bond yields broadly rose over the month. While investment grade bonds were broadly flat, high yield debt performed better as credit spreads narrowed. Emerging market local currency debt fell close to 2% as the underlying currencies weakened. Most commodities were lower over the month as the US dollar strengthened.
Signs of stabilisation in economic data and better investor sentiment appeared to be the main reason behind the strength of risk assets in general. Surveys suggested that global manufacturing was finding a floor, following a period of weakening that started in early 2018. However, although it tends to lag, the service sector remains on a downward trend and investors are still waiting for confirmation that a rebound will spread to this segment which comprises the bulk of economic output. Signs that we may be seeing the bottom of the latest ‘mini-business’ cycle since 2008 helped to improve investor sentiment, which had become very depressed over the summer. The indications of a better outlook sent equities higher and high yield credit spreads narrower, while weighing on safe-haven assets such as gold.
Investors remained focused on whether a “Phase 1” trade deal between the US and China would be reached before the next scheduled US tariff increase on 15 December. Tougher rhetoric from both sides punctuated a general feeling that the two sides were broadly edging towards an agreement that would at least end the frequent escalation. It remains very difficult to tell whether antagonistic remarks are just posturing or signify deeper divisions. However, the rise in markets suggests that most investors believe that a deal is still likely.
In the UK, markets were focused on polling ahead of the general election in mid-December. The Conservative Party built a commanding lead in the surveys of voter intentions, suggesting a majority Tory government is the most likely outcome. Despite indications prior to the announcement of a vote and the clearest stance against Brexit – the issue seemingly at the heart of the 2019 election – the Liberal Democrats saw support fade away in favour of the main opposition Labour Party. UK assets were fairly muted over the month as, despite clear indications from opinion polls, investors remained uncertain about the likely election result and risks of more extreme economic outcomes.
Performance and activity
Over November the fund’s Net Asset Value (NAV) rose 0.2%, the share price fell 2.2%, and the Company’s Association of Investment Companies (AIC) Flexible Investment peer group returned 0.5% in share price terms (source: Morningstar). The FTSE World Total Return Index, which the Company aims to outperform over the long-term, returned 2.6% in sterling terms. The Company’s NAV is up 1.0% for the year at end November 2019.
The best performing sector during the period was public equity. Healthcare stocks rallied strongly during the period and the Fund’s position in Worldwide Healthcare Trust PLC, rose 15%, contributing 0.4% to returns. This was partially offset by a fall in the value of Sigma Capital Group PLC which detracted 0.2%.
Hedge funds were also a positive contributor, adding 0.3% to performance. The best performing hedge fund during the period was the BlackRock European hedge fund which returned 3.8% during the period.
Performance was held back by the property sleeve with Ceiba Investments Ltd, falling 10% during the period. The discount on the position has opened considerably as relations between the US and Cuba have worsened.
Activity was very light during the month. The Fund’s exposure to property was slightly reduced via a small sale of Summit Properties Ltd.