Latest investment update
Here you’ll find your update on NatWest Invest and other investment news, to help keep your finger on the pulse.
Quarter 4 2020 investment news
Take a look at the invest activity from 1st October to the 31st December
Performance in the last quarter of 2020 was defined by news of successful anti-coronavirus vaccine trials in November and their gradual deployment at the end of the year. During the summer and autumn of 2020, the manager positioned the NatWest Invest funds to benefit from an economic recovery – which then came largely because of the vaccines’ positive impact.
In particular, reducing the allocation to US equity in favour of emerging markets was very positive to performance. Emerging markets benefited from a double hit of a weaker US dollar – which makes emerging market exports more attractive – and the prospects of a post-COVID global economic recovery. The latter could see consumer demand increase and boost demand for commodities and manufactured goods, areas where the emerging markets excel.
The manager has also been working to reduce the environmental impact of the NatWest Invest funds by switching to funds that concentrate on companies with lower carbon footprints. Data released in October showed that they reduced carbon emissions by 33% on average for each fund in the first half of 2020.
Market update as at 31 December 2020
Equity markets made strong gains over the last few months of 2020 following positive news about vaccines and ongoing stimulus measures by central banks and governments. While rapid development of the vaccines boosted investor confidence, a resurgence in coronavirus cases at the end of December led to further widespread lockdowns across the UK and Europe.
Emerging markets were the outstanding performers of the period as the global economy began to recover and the US dollar weakened. Notably, many emerging market countries have managed the coronavirus pandemic more effectively than developed markets. For example, China seems to have the virus largely under control, reporting that its economy grew by 4.9% between July and September.
In the US, a change in president was generally seen as positive by markets. After a close election, Joe Biden became the 46th US president. While the predicted ‘blue wave’ didn’t appear on the night, a re-run in Georgia saw Democrats take control of the Senate, giving them a majority in both houses of Congress and the Presidency for the first time since 2009.
Markets remained sanguine as the result brought greater certainty after a few months of political uncertainty. With Democrats controlling both houses of Congress, the potential for more fiscal stimulus could be beneficial for equities.
UK equities had a positive quarter, doing particularly well in November and December, thanks to heavy weighting in the economically sensitive sectors such as financials and energy that benefited from renewed economic optimism.
The UK’s departure from the EU has been the defining factor for the pound since the June 2016 referendum, and its value has been jolted higher and lower by the vagaries of trade talks. After negotiators reached a historic pact on Christmas Eve, sterling rallied to just below its 2020 peak against the US dollar and advanced against the euro.
Fund positioning and outlook as at 31 December
The manager remains positive on the prospects for long-term economic growth. The latest lockdown has come with renewed fiscal support from the government and, in their view, has merely delayed the recovery, not stopped it completely. They are therefore keeping a bias to equity over defensive assets like bonds and focusing on sectors and regions that typically do well in times of economic growth.
Emerging markets should continue to benefit from a weaker dollar, which has been pushed down by the magnitude of monetary and fiscal stimulus deployed by US authorities, and investors’ confidence in an economic recovery.
In the UK, a sustained revival for sterling will be positive for UK assets, and could provide a further boost for UK shares. Investors now simply have no excuse not to consider UK equities.
One concern is the highly optimistic market sentiment, which has priced in a lot of positive news. Market corrections are not unusual in situations like this if the news flow turns negative, even if the underlying picture is still supportive.
After the very positive months of November and December, some retrenchment is possible. However, the manager is more likely to see this as a buying opportunity and could look to add to favoured themes during any periods of market stress.
When investing, past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.