Fisconsult Fund Newsletter - Oct 2020
Newsletter - Fisconsult Fund Management
After a strong start in November, markets in October continued to be characterised by the negative trend that started in September at end of month. Market performances were -3.28% for the S&P 500, -7.38% for the Euro Stoxx 50 and -4.76% for the CAC 40.
In addition, the month ended with a dark week due to the uncertainties surrounding the U.S presidential elections and the announcements of re-confinement. It became indeed very clear during October that the second wave of coronavirus continued to hit most countries in the northern hemisphere badly. Record numbers of new cases implied new health measures, which varied in intensity depending on how badly the countries and regions were.
Regardless of the level of containment required, it is clear that there will be a significant negative impact on the economy, notably for those sectors which were most affected during the first wave in March-April. Additionally, with most investors willing to protect themselves from the negative consequences of a complicated US election, it is hardly surprising that October, which is already reported to be a historically bad month, couldn’t have brought growth for investors.
Nevertheless, on a slightly more positive note, this pandemic is no longer a shock to the markets today as it was during the first wave at the beginning of the year. Particularly since central banks have been doing their utmost since March to cushion its economic and financial impact and, more still importantly, the fiscal policies of most key countries have become much more expansive.
Moving back to the elections, we remarked in our September report that the most interesting feature about would probably be to see whether the Democrats, once elected, would manage to regain a majority in the Senate. Indeed, having a Democratic President and a Republican Senate would undoubtedly hamper the government's room for action, particularly with regards to fiscal initiatives, which are necessary in the current post-Covid recession environment.
For us, this is still the key point of these elections, although in the medium term, its impact is unlikely to be significant on the securities we hold in our portfolio. It is also interesting to note that, historically, equity markets have performed better during Democratic presidential terms than during Republican terms.
In our previous Newsletter, we also mentioned the likely scenario of a long vote counting process in some states; this proved fairly accurate. We had to wait four days to have a winner in this presidential race, the outgoing president looked anything but gracious in defeat and the fate of the Senate will be decided in two special elections to be held in the state of Georgia next January. Against all expectations, and despite all these uncertainties, markets experienced a thunderous start in November with significant rebounds allowing them to erase their October losses.
In other words, the specific scenario that stressed investors the most is precisely the one that occurred, yet instead of collapsing, stock markets took off to make up for most of the September and October losses over just five business days. This demonstrates, once again, that even with the most accurate predictions, it is impossible to extrapolate their impacts on the stock markets.
This new example reinforces our conviction that the only way to protect ourselves effectively against this type of risk is not to try to predict the future and multiply market entries and exits, but rather to invest only in ‘quality’ companies that, in order to create value over the long term, do not ultimately depend on an election or the choice of a head of state, however powerful he may be.
Again, this philosophy is paying off, as we ended October more resiliently than the indices: FFM European Selection corrected by -4.9% over the month and FFM American Growth by -1.89%. If we include the first week of November, our results are even better with a strong market recovery and our two funds continuing to outperform the indices: FFM European Selection posted a performance of +9.65% in 2020 (against -15.23% for the Eurostoxx 50) and FFM American Growth gained +17.73% over the same period (against -3.54% for the Dow Jones).
Fisconsult Fund Management
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