In January, when the year was just starting, at Reeves we had no more idea than anybody else what a tumultuous 12 months was in store.
In fact, the general market sentiment was positive and leaned towards the view that it would not pay to be cautious. However, while we increased our exposure to global and UK equities and bonds, we were unwilling to make rash decisions on the back of short- term sentiment and we remained overweight in our cash holdings.
This paid off in March when, as the pandemic took hold, markets across the world fell. We were able to use the cash we had held onto to buy certain equities at a much lower price than they we before the fall.
As we moved into the second quarter in April, markets began to recover and, at Reeves, we sold a portion of our top performing equities in sectors such as technology. Despite the markets picking up, we remained wary of increased volatility as Covid-hit businesses would inevitably have to announce poor earnings and reduced dividends.
Although we had certainly not foreseen the pandemic, for a couple of years we had been anticipating a recession in some form, so we were relatively well-placed for the market fall. We were in a good position relative to the rest of the market and we performed well against benchmark.
Going into May, we sold slightly more equity for our more cautious clients and retained much of our exposure to US markets. Our balanced tactical portfolios were defensive with limited exposure to global and domestic equities. By June, Reeves could announce that in the year-to-date, its model portfolios were beating the FTSE All Share and the benchmark.
As the summer progressed and we moved into July, we made no changes to the portfolios. In that month, the S&P 500, which tracks the largest US stocks, reached positive returns, on a year-to-date basis, for the first time since the March collapse. But, in our August investment committee meeting, we agreed that we expected the markets to return to volatility. The factors behind this were the looming US election, with all its attendant uncertainty, Brexit’s fast approaching deadline with little signs of progress towards an agreement, a return to rising Covid cases in Europe, the threat of the UK going back into lockdown, and a historic trend for October volatility.
Sure enough, September brought a second Covid wave to the UK, hitting businesses again and, in the US, rising uncertainty in the markets brought the S&P down by nearly 8%.
In October, we made no change to our portfolios, but, while markets were largely treading water, our portfolios returned modest growth.
We are satisfied with our current asset allocation which reflects our caution in the face of continued market uncertainty, remaining overweight in cash and bonds with our primary focus in November being on possible investor opportunities in global government bonds.
At the time of writing, we are planning for news of a successful vaccine rollout with our portfolios on standby to have higher levels of equity for large market rallies.
Now we look forward to a peaceful Christmas and a less turbulent New Year.
This article represents the opinion of Reeves Independent Limited and is for information only. No action should be taken based on this information alone. Remember that investments can go down as well as up and past performance is no indicator of future performance.