July 2020: Smart Portfolios extend gains over benchmarks, now ahead by +5.7%, as gold reaches record highs

Markets slowed in July with global equities turning negative for first time in three months, falling by -0.5%. The pace of new Covid-19 infections gained in most regions prompting local lockdowns in high-risk areas which aided Gold to reach a new record high at $1984.48 per ounce.

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results
July 2020: Smart Portfolios extend gains over benchmarks, now ahead by +5.7%, as gold reaches record highs

What happened in to global equity markets in July?

Hopes for a coronavirus vaccine were boosted in July as early trials from the University of Oxford’s vaccine appear to trigger an immune response. The UK has since ordered 100 million doses of the treatment but there is still a long way to go until we find out if this particular vaccine is enough to offer protection against the virus.

Within the UK, Chancellor Rishi Sunak set out his summer plan to get the economy moving in the right direction by reducing stamp duty on home purchases, cutting VAT and offering firms £1000 per furloughed staff member that they retain until January. However, the furlough scheme will end in October which investors fear could cause mass unemployment. Adding to this, further local lockdowns in Luton and the North of England were implemented by the government as it attempts to curb fears of a second wave. The FTSE 100 slipped by -4.2%.

July stated off as a positive month for the S&P 500 but reversed towards the tail end of the month. US GDP contracted by an annualised rate of 32.9% for the second quarter (Q2), its largest drop to date, pushing the US into an official recession (two consecutive quarters of negative GDP growth). Infection rates picked up in several states, such as California, Florida and Texas, meant there were halts to re-opening plans. In GBP terms, the S&P was effectively flat for the month dropping by just -0.2%.

The EU finally agreed a €750 billion coronavirus stimulus fund to put the bloc’s economy back on track in what was one of the longest European Council meetings in history. Yet, Europe (ex-UK) declined by -1.6%. In China, GDP grew by 3.2% year on year for the Q2, beating analyst expectations, prompting the CSI 300 Index to jump by 8.7% and was the best performer in the regional markets we follow. Investors can gain exposure to China within their portfolio by investing in exchange traded funds (ETFs) such as iShares MSCI China ETF (MCHI), the full range of ETFs IG offer can be found on our ETF Screener.

Figure 1: global equity market returns in July (%, total return in GBP)

Source: Bloomberg

Influx of demand for safe-haven assets

Uncertainty surrounding the global economy has led to a huge surge in demand safe-haven assets such as gold, which has propelled price to its then all time high of $1984 per ounce. Also, the US dollar basket, which tracks the value of USD relative to a basket of foreign currencies, slipped -4.0% in July which supports the theory that gold and the US dollar have an inverse relationship. Silver also had a phenomenal month, jumping by 27.5%.

Investors would typically invest in exchange traded commodities to gain long-term exposure to gold, but how do you know how safe a gold fund actually is? Read our article on this topic here.

Figure 2: commodity market returns in July (%, total return in GBP)

Market Code July returns (%)
Gold GOLDLNPM Index 5.02
Silver SLVRLN Index 27.47
Palladium PLDMLNPM Index 2.44
Platinum PLTMLNPM Index 5.07
Copper BCOMHGTR Index - 0.7
Alluminium BCOMALTR Index - 0.8
Lead BCOMPBTR Index - 0.1
WTI BCOMCLTR Index - 3.3
Brent BCOMCOT Index - 0.6
Natural Gas BCOMNGTR Index - 5.0

Source: Bloomberg

Smart Portfolios extend gains over benchmarks

July was another strong month for Smart Portfolio performance. All four of our multi-asset profiles extended their outperformance over benchmarks whilst our conservative profile, which invests purely in fixed income, was flat for the month.

Gains in the portfolios for July can be attributed mostly to our GBP Hedged S&P 500 position as well as our holdings in gold. In our latest portfolio rebalance in June we added to our gold position, a move which meant that the safe-haven asset ranked second in terms of positive contribution to returns for the month. Read more on our latest rebalance here.

Figure 3: year-to-date Smart Portfolio returns

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Publication date : 2020-08-07T15:28:48+0100

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