November 2020 – Markets are on the rise and vaccines ready


Amid a spectacular index rally this month, our three funds posted positive MTD returns: SFRR (flexible multi-strategy) ends November up +5.63% (+29.09% YTD), SFPG (hedged growth equity) reports a +8.05% rise (+36.97% YTD), while the SFQS (long only quality shares) posts positive returns of +6.21% (+18.08% YTD). The world is starting to believe the battle against Covid-19 is coming to an end. Ever since April we have firmly believed in a rapid recovery and have unwaveringly stood by, and acted on, this belief.

Market commentary

Short-term uncertainties are being removed:

  • Vaccine testing has obtained encouraging results. The fist vaccine is approved in the UK (Pfizer/BioNTech), distribution has started => positive for exchanges
  • Governments are working on new fiscal easing measures => positive for exchanges
  • Central Banks continue to increase money supply => positive for exchanges
  • Biden wins elections and all points to the Republican’s continuing to dominate the Senate, once the repetition of the election in Georgia is completed => positive for exchanges
  • New inflows into equity markets after three stagnant years => positive for exchanges

Risks are both assumable and manageable:

  • Some indicators suggest that markets are overbought; this is normal in recovery stages and usually ends in a consolidation phase, without sharp corrections.
  • Wage moderation and a flexible aggregate supply help contain inflation, while Central Banks announce they will allow inflation to rise beyond their usual target for quite a while before withdrawing stimulus.
  • High levels of Government debt => the need for lower real negative rates to dilute debt ratio without excessively raising tax burden penalizes banks as their core business is highly committed in the medium and long term. We expect mergers and low returns in the industry going forward.
  • Money supply will continue to be high, while discussions of whether such an active intervention is advisable are carried on. Beware of crypto-currencies: the wish to rebel against Central Banks can outbalance the security of investments. 
  • Globalization will continue to run its course: it is unstoppable; even Trump, leading the largest economy in the world, has been unable to derail it.
  • There is a will to tackle Climate change: barring better options, the investment industry has proclaimed responsible investment (ESG) as the central mission of its value offering.

=> Let us be clear: our mission is to make our investors’ assets grow, and our top priority is to continue to do so for decades. In practice, this missions demands that we search for sustainable business models and investments, capable of making the world a better place to live in. It is precisely this quest that gives us the security that is needed to protect investors’ wealth in the long term, and to avoid regulatory and product and services obsolescence risks. However, it is important we do not forget that our core objective is profitability and that not all investments labelled as “sustainable” are profitable.

Long term trends continue unchanged:

  • Digitalization of the productive framework: accelerated digital transformation of non technology companies.
  • Human-Machine and Machine-Machine interaction: speech recognition systems allowing people with no technical knowledge to “program” computers/devices, will revolutionize productivity and creativity.
  • Communications and long-distance transactions: wholesale lockdowns have made us accept a new reality: almost anything can be done without face-to-face contact (retain employees and providers, purchase or rent homes, sell high value goods…), and this new reality will increase both productivity and company profits. 

Our outlook for 2021 is positive: company results will be higher than expected and we will see a quick return to normality. We anticipate a strong sense of normality will be felt in March next year: vaccine distribution among risk population in January and February will allow for a greater mobility among non risk population, making it highly improbable that further mobility restrictions will be enforced.

This year has taught us an important lesson: when investing, we need to be cautious and flexible, and brave. Fear has a paralyzing effect and can bully us into making reckless decisions. Rational analysis and repressing sentimentalism in decision making allows us to be flexible enough to adapt to changing circumstances and meet risks calmly.

Let’s keep on growing in the New Year. We wish you excellent health, a cool mind set until vaccines are distributed worldwide, and courage to continue to face this devastating crisis which we are already defeating. And please remember that we are closer to being able to meet each other face-to-face.