Page 24 - DIY Investor Magazine | Issue 31
P. 24

   BARGAINS GALORE This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. This material should be considered as general market commentary.   We review our discounted opportunities portfolio, with one constituent rallying more than 30% in just two months... We last updated our discounted opportunities portfolio in July, since when markets have been grinding higher but discounts have not moved – and perhaps slightly widened. It is hard to have conviction about the direction of markets and leadership at the moment, which may explain the static picture regarding discounts. At a directional level, the easy gains in the recovery have been made, and government support schemes have still to be wound down, creating uncertainty about the real health of companies and economies. At the market leadership level, the growth/value distinction was the main driver of markets from the start of the pandemic to the end of the reflationary rally in Q1 2021. Since then, the degree of divergence of the relative returns of the two styles has fallen, and we would argue it is not clear it will drive markets to the same extent over the coming months. One possibility we have been alluding to over the past year is that after the initial recovery, it will be quality that is the most attractive characteristic, as economies struggle with the impact of the pandemic for some time to come, despite the optimism of the relief rally. Supply chain issues, wage inflation and declining macro data from the US and China are all possible indications of a more troubled period to come. ‘IT WILL BE QUALITY THAT IS THE MOST ATTRACTIVE CHARACTERISTIC, AS ECONOMIES STRUGGLE WITH THE IMPACT OF THE PANDEMIC’ We think this is more than a summer lull with concerns about the impact of the delta wave, which was picking up steam at the start of the period; the current period could be key, but if the UK and Europe manage to open schools and return to the office a new wave that needs to be controlled via lockdowns, this could be the catalyst for a fresh wave of optimism. Yet with support schemes in the UK winding down at the same time, it is hard to call how everything will play out. MARKET REVIEW Since our last review on 14 July, the UK’s recovery rally has slowed, and the FTSE All-Share’s total return of 1.9% is below the 3.5% of the MSCI ACWI. Morningstar’s universe of investment companies has enjoyed NAV total returns of 2.2% over the period and share price total returns of 2.8%. The discount has narrowed slightly over the period. JPMorgan Cazenove’s more restricted universe of investment trusts has seen slightly lower numbers for both return series, with discounts ending up roughly where they started at around 3.6% on a weighted average basis compared to 3.5% on the 14 July.      DIY Investor Magazine · Nov 2021 24 

   22   23   24   25   26