Apex Retirement Investment Solutions – July 2020 update

Global Stock markets continue to recover in June as they seem less worried about the economic impact of the virus and the threat of a second wave. The FTSE 100 and FTSE 250 gained 1.66%* and 0.60%* respectively. This led to gains in the portfolios of between 1.03% and 1.38%.

Two headlines in the Daily Telegraph (30th June) sum up the current investment world – ‘FTSE closes out best quarter since 2010’, which was contrasted with, ‘Economy suffers worst quarter in 40 years’. Central Banks have been reacting to the bad economic news by flooding the economy with more liquidity (money). Some of this money has been invested in asset classes, which has helped the recovery in global stock markets.

With lockdown easing globally, we are expecting an increase in the rate of infections or what has been termed a ‘second wave’. We have also seen cases rising in India, and within certain states in America.  Stock markets appear to be calm as we are in a much better position to manage any increase in infection rates, through testing, tracing, fighting it with new drugs (e.g. Remdesivir) and hospital capacity.

As stock markets continue to recover, we have seen more of them break above trend. There are now 17/22 of the asset classes above trend and therefore we are invested in them. Technology continues to lead the stock market rally, with some of the world’s biggest companies, surging to new all-time highs.

Technology innovation is inherently deflationary, and this is helping to keep a lid on interest rates and allowing governments to borrow even more money. Long-term, one of the best ways to repay this debt is by allowing inflation to reduce its value. If this does indeed happen we expect bonds to fall significantly in value as interest rates will have to rise.

The performance of the portfolios over the last month, 6 months and 1 year is shown below (please note that the portfolios were launched on 1st November 2019 and the 1 year performance is from our back tested strategy which gives you an indication of what the performance could have been like) :

Trend Following Signals

The table below shows whether the asset class is either in a positive trend (ü) or a negative trend (x). The portfolios will have more exposure to those asset classes in a positive trend and less (if any) to those in a negative trend.  These are the main asset classes we monitor:

European and emerging market equities moved back above their trend lines this month.

Smart Equity” Exposure

 Academic research has shown that if you follow a systematic method for investing, you will significantly outperform against the benchmark. For example, research by the Cass Business School has shown that if you combine a number of “Smart Equity” ETFs in the US market you can beat the S&P500 by at least 1.5% per annum. Our Retirement Investment Solution 2, 3, 4 and 5 portfolios combine Trend Following with “Smart Equity” exposure and invest in three ETFs from iShares which use “Momentum”, Quality” and “Volatility” in an attempt to outperform.  Momentum again outperformed this month.

Summary of Portfolios

We have continued to experience a rally in global equity markets and our portfolios benefited from this. The portfolios were positioned very defensively back in March and April and if stock markets had fallen further then our trend following portfolios would have helped protect our clients wealth. However, as stock markets have recovered, we have been increasing exposure to them and will continue to do this as and when markets break above trend. Thus we have helped protect wealth during the bad times and have started to grow it again during this recovery.

You can download the full document as a pdf here