May 2020: Smart Portfolios beat benchmarks as markets extend gains due to easing of lockdown measures
Markets continued their rebound into May with global equities advancing 6.6%. Even with the continued uncertainty surrounding Covid-19, global equities are close to reversing all losses since the start of the year.
What happened in the global equity markets in May?
As lockdown measures began to be lifted and additional support measures were announced, equity markets reacted positively, with few exceptions. Countries who are perceived to have control over the pandemic, such as Germany (DAX) and Australia (ASX), were amongst the top regional performers in May returning +10.6% and +8.6% respectively, in GBP terms.
In the US, tensions heightened between the US and China as US president Donald Trump announced he would end agreements that gave Hong Kong preferential treatment over trade and travel in response to the Chinese parliament approving a controversial national security law over the city. Despite this, the S&P rose by 7.0% as all sectors in the index rose with technology stocks being the outstanding performer.
In comparison, UK stocks rose by a modest 3.3% (FTSE 100). Returns were weighed down as investors are becoming more fearful over a no-deal Brexit due to the little progress being made coupled with a seemingly reluctant British Prime Minister Boris Johnson to extend the deadline beyond the current end of December cut off.
Brazil’s central bank outlined its intentions to support the economy, if needed, which saw the market rise 11.6% (IBOV), the best performer in the regional markets we follow. Adding to this, president Jair Bolsonaro continues to push his anti-lockdown policy and even claimed that he 'wouldn’t feel anything' if he were to become infected with Covid-19. Investors can gain exposure to the Brazilian stock market performance via ETFs such as iShares MSCI Brazil Capped ETF (EWZ), the full range of ETFs can be found on our ETF Screener.
The outlier in performance for May were some of the Asian markets. Hong Kong was the worst performer as we saw thousands protest Beijing’s announcement that they will be imposing national security laws over the region. Meanwhile, Indian equity markets dropped -1.1% (NIFTY 50) as its confirmed coronavirus cases now surpass that of Italy. Furthermore, the Centre for Monitoring the Indian Economy (CIME) announced that India’s unemployment rate is now at record high levels of 27.1% with 122 million nationals losing their jobs in April alone.
A strong month for commodity markets
Commodities followed the equity markets and overall had a positive month. Oil lead the way with its rebound from its negative price we saw in April as demand for Brent and Crude ticked up due to lockdown measures easing around the globe, up 38.9% and 52.8% respectively. Base metals also had a strong month, with copper, aluminum and lead all advancing over 4%. Silver stood out within precious metals, yielding a 17.2% return in May followed by platinum and gold – palladium was the sole negative performer.
Figure 2: commodity market returns in May (%, total return in GBP)
|Gold||LMBA Gold Price PM||3.7%||20.7%|
|Silver||LMBA Silver Price||17.2%||4.7%|
|Palladium||Palladium London PM||-1.2%||5.2%|
|Platinum||Platinum London PM||9.9%||-10.9%|
|WTI||BBG WTI Crude Oil||52.8%||-59.0%|
|Brent||BBG Brent Crude||38.9%||-42.8%|
|Natural Gas||BBG Natural Gas||-13.0%||-24.9%|
Smart Portfolios extend gains over benchmarks
Our range of ready-made portfolios extended gains over their benchmarks in May across all five of our portfolios with average outperformance coming in at 0.6% for the month. Looking at year-to-date, performance has been extremely strong across the multi-asset portfolios (moderate to aggressive) with returns exceeding our benchmarks by 5.7%, on average.
Figure 3: Smart Portfolio performance
|Conservative||3m Libor +1%||0.9%||0.1%||0.8%||-0.2%||0.7%||-0.9%|
|Balanced||ARC Balanced Asset||2.8%||2.3%||0.5%||-0.4%||-6.1%||5.7%|
|Growth||ARC Steady Growth||3.4%||2.7%||0.7%||-1.4%||-8.2%||6.7%|
|Aggressive||ARC Equity Risk||3.9%||2.9%||1.0%||-4.8%||-9.8%||4.9%|
In terms of contribution to returns, Europe ex-UK was the strongest performer in the equity sleeve of our portfolios in May, followed by the US. Emerging market bonds and GBP Index-Linked gilts stood out in what was a positive month for fixed income, returning 6.4% and 4.28% between them. Our modest holdings in gold also contributed to gains in our multi-asset portfolios, with the safe-haven asset rising by 3.7% last month.
You can see a full breakdown of the Smart Portfolio’s performance on our website. You can also compare our fees against other UK investment managers to see how much faster your wealth could grow with IG.