The last week in markets was quite typical of the environment we have observed for the year to date. There was not an awful lot of movement at the headline level, but quite a lot of volatility and dispersion of returns below the surface, which made precise positioning critical. Headline global equities, as measured by the MSCI All Country World Index (ACWI), were down -0.3% in GBP terms, while most forms of Fixed Income sold off as interest rates continue to rise in the US as market participants price in a robust economic recovery.

What we found to be particularly of note last week was the continued outperformance of “Value” equities, in excess of their “Growth” counterparts.  As we approach the end of the first quarter of 2021, it is interesting to note how different this market has been versus what we observed in 2020. For the year to date, MSCI ACWI Value is up +7.0% in GBP terms vs a return of -1.7% for MSCI ACWI Growth.

On a stock level, names which exploded upwards in a pique of exuberance in 2020 have struggled this year with Tesla down -5.7%.  ETFs such as the wildly popular ARK Innovation ETF are down -2.6%, while in the UK popular Funds such as the Baillie Gifford Global Discovery Fund are down -3.6%. This contrasts with a YTD market return (MSCI ACWI in GBP) of +2.7% and a return of +13.7% for our Value managers (Pzena Global Value in this instance).

What is really fascinating is the fact that Volkswagen shares have returned +78.5% for the year to date, driven by their increasing dominance in the electric car market. This return contrasts with Tesla’s negative performance year to date and is emblematic of the fact that VW is now outselling Mr Musk in electric vehicles in Europe. Volkswagen is valued at 7x the earnings it is expected to generate over the next 12 months, vs Tesla on 146x. This is really interesting because it illustrates that investors do not have to follow the herd and pay stonking prices to gain access to interesting investment themes such as the electric vehicle revolution. Kawasaki Heavy Industries is another interesting name held by our Nikko Japan Value Fund, which is in a prime position to take advantage of the opportunity presented by the advent of hydrogen energy but is valued on a price-to-book ratio of less than 1.

On the Fixed Income side, it has been interesting to see our Chinese Government Bond Fund (UBS China Bond) perform positively year to date, as bonds have sold off globally as interest rates rise. UBS is up +0.2% vs -2.7% for the Barclays Global Aggregate Index. Once again this demonstrates the importance of nuanced Active positioning in the current environment.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete.  Unless otherwise specified all information is produced as of 22nd March 2021.
© 2021 Beaufort Investment. All rights reserved.