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Investment Insights - The drivers of return.
There were three key drivers of performance to grow your portfolios for the third quarter – remaining invested, a technology-led global economy and gold.
Many observe the abysmal forecasts for economic growth and quarterly earnings and believe shares are disconnected from reality – inflated by government or central bank largesse.
Yes, there is a disconnect between economic data and share markets but it does not mean markets are irrational.
They are doing what they have always done: anticipating future conditions after weighing the worries that headlines and data convey.
The market does not wait for the all clear signal in times of hardship, such as COVID-19.
In fact, this is likely already priced into expectations.
A sustained share market climb with volatility seems much more likely than another steep downturn and we therefore remain fully invested within the growth and inflation portfolios.
Since April, clients’ growth portfolios have held a bias towards technology companies.
To survive a potentially challenging economic environment in the near-term, consumers and companies are using and investing in technology.
Technology companies are improving their ability to generate real earnings and cash flow through differentiated products and services.
We focus our time and effort on what drives share prices over time – earnings – and we believe technology will form a large part of clients’ portfolios for some time to come as technology companies’ ability to grow earnings accelerates.
Gold is becoming viewed by many as the currency of last resort, particularly against a backdrop of rising geopolitical tensions, elevated United States domestic political uncertainty and a growing second wave of COVID-19 related infections.
Furthermore, last month the United States budget deficit – US$864 billion in one month – was larger than the total debt incurred from 1776 through the end of 1979.
The money that central banks are using to buy financial assets is created out of nowhere; it is not existent money that the central banks possess.
Gold on the other hand, is a limited resource. You cannot ‘print’ gold! Therefore, as more investors demand a limited resource, it increases in value.
As gold increases in value, Hallam Jone's clients have benefited. Gold is not without its volatility but adds a unique uncorrelated return to the shares held within clients’ growth and inflation portfolios.