2020 Hindsight

The analysts at Kepler Trust Intelligence have produced more than half a million words in the last twelve months. It is fair to assume that a good ten percent of those were anticipating (too early, and for the third year running) a market rotation to value, while at least another ten percent were Callum predicting famine and economic collapse in China, rocketing wheat prices or the demise of Tesla.

As this weary year, the death of which few (except perhaps vendors of PPE) will mourn, draws to a close we look back on some of those words and highlight the articles which, in the opinion of our analysts, stand out most.

Personally, I think the debate between fresh faced young Turk Will ‘Slobbers’ Sobczak and wily old fox William ‘Billy Amory’ Heathcoat Amory back in January must be given credit for its combination of razor-sharp accuracy, blithe confidence and truly, massively, epic understatement.

“Is it time to run away?” was the headline of the piece, which asked whether complacency was in the air, and wondered whether coronavirus might be a ‘potential source of the next market setback’ – a month before the FTSE 100 lost eight years of gains, the pound slid to a 35 year low and a recession on a scale not seen since the Napoleonic wars began.

A direct quote from the article does the rest:

“One can always find something to worry about: the excessive leverage found everywhere in the global financial system, climate change, coronavirus or Middle East tensions (as well as myriad others) are all potential sources of the next market setback or bear phase.”

How very true.

William Heathcoat Amory

One of the dominant themes for equity markets during 2020 has been the relentless rise of Technology companies. Certainly, COVID-19 has brought forward patterns of behaviour by a factor of years, meaning those companies who have innovative new products have seen a significant improvement in prospects.

This has not gone unnoticed by investors, and so valuations for technology companies have risen.

We believe investors would do well to diversify growth within their portfolio – and specifically to two mega-trends that are set to run for many decades. Both healthcare and climate change are likely to remain huge challenges, but offer companies that address these challenges huge rewards.

The trust universe has plenty of interesting ways of investing in them. We provided an updated and more in depth look at climate change and sustainability in a more recent article which can be found below.

Click here to read the original article in full

Click here to read our more recent update on the same subject

Thomas McMahon

My favourite piece of research this year was Callum’s fascinating investigation into the significance of the growth of passive investing for market behaviour.

With his characteristic combination of analytical rigour and diabolical puns, Calum sketched out some really interesting consequences for investors of the decreasing price-sensitivity of the average dollar spent in the market.

It will be interesting to see whether the wide divergence in performance by country, sector and stock this year leads to some money shifting back into active next year.

However, the technical trend towards passive looks likely to persist in the long run. Most interesting to me in the piece is the point that the growth of passive investing doesn’t actually make it easier to generate alpha.

Click here to read the article in full

Callum Stokeld

‘Has the time come for Europe?’ we asked in August. In my view this was both topical, but is also likely to remain a useful strategic overview for what the real reason to adjust geographic exposures to go under or overweight Europe is.

It can be easy to look for mean reversion between series which don’t mean revert, but a bullish call on Europe had, and still has, a fundamental macroeconomic call tied into that. This call is nothing to do with endogenous factors.

The outcome since this was published has largely followed expectations: European relative performance to global equities has directionally followed the same pattern as European value relative to European quality (i.e. European value was and remains the conviction beta play on Europe). I expect this to continue to be the case.

That commodities have followed the same general relative direction, but outperformed European equities significantly, further emphasizes the case that Europe is essentially a global macro beta play.

Click here to read the article in full

David Johnson

ESG has a lot in common with COVID-19 as no matter how much you want to ignore it, it has woven its way into everything we do.

Almost every single investment strategy now makes some form of noise around their ESG credentials, but it can be difficult to see the ESG forest for the trees. How does an investor separate the actual ‘good guys’ from those who are simply box-ticking?

For this reason, my favourite article of 2020 is ‘Nice Guys Finish First’, as it helps to answer this question; “providing a succinct history of ESG and why it matters to investors, as well as, some of the pitfalls and difficulties we face in identifying actual ESG integration. It also gives plenty of examples of potential opportunities for the sustainable-conscious investor.

Click here to read the article in full