How a Quality approach can provide resilience

Key takeaways

• The market is underappreciating the risk of a no-deal Brexit with COVID-19 and the US election dominating the news agenda until recently; it is important to be careful with UK currency exposure in portfolios.
• The recent Ant IPO being pulled serves as a reminder that China is still an emerging market. Longer-term, the outcome should be positive as this regulation around micro-loans should reduce credit risk. It’s also better to happen before the IPO than after, when Ant’s share price would have fallen 25%-30% and really hurt investor sentiment.
• Global portfolios can also access the China opportunity indirectly, through companies that operate there. It’s an attractive structural growth opportunity.
• The FAANG stocks have created a very narrow market that investors are keen to rotate out of; these companies also face increasing regulatory risks.
• The art of constructing a portfolio that offers resilience in both good times and bad is having that balance. While crowded trades can cause relative underperformance, it is when the rotations occur that this additional balance comes to bear.
• In the UK, there is little direct technology but it’s clear that tech is affecting business models much faster than in the past; it is important to focus on businesses that can handle geopolitical stress, economic uncertainty and structural change.
• US political gridlock is not necessarily a bad thing from a market perspective; no significant policy changes are likely to be enforced, which means markets can now focus on the shape of recovery.

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