We last updated our discounted opportunities portfolio in July. Since then markets have been grinding higher but discounts have not moved – and perhaps slightly widened. We think readers will largely agree that it is hard to have conviction about the direction of markets and leadership at the moment, which may explain the static picture regarding discounts. At a directional level, the easy gains in the recovery have been made, and government support schemes have still to be wound down, creating uncertainty about the real health of companies and economies. At the market leadership level, the growth/value distinction was the main driver of markets from the start of the pandemic to the end of the reflationary rally in the first quarter of 2021. Since then, the degree of divergence of the relative returns of the two styles has fallen, and we would argue it is not clear it will drive markets to the same extent over the coming months. One possibility we have been alluding to over the past year is that after the initial recovery, it will be quality that is the most attractive characteristic, as economies are likely to be struggling with the impact of the pandemic for some time to come, despite the optimism of the relief rally. Supply chain issues, wage inflation and declining macro data from the US and China are all possible indications of a more troubled period to come. We think this is more than a summer lull, therefore. One weight on sentiment is likely to be concerns about the impact of the delta wave, which was only really picking up steam at the start of the period. If this is the case, the current ‘back to school’ period could be key. If the UK and Europe manage to open schools and return to the office without kicking off a new wave that needs to be controlled via lockdowns, this could be the catalyst for a fresh wave of optimism. Yet with support schemes in the UK winding down at the same time, it is hard to call how everything will play out.
14 Sep 2021
Bargains galore
JPMorgan US Smaller Companies Investment Trust PLC GBP (JUSC:LON), 386 | Jupiter Green Investment Trust PLC (JGC:LON), 182 | CC Japan Income And Growth Trust (CCJI:LON), 0 | Brown Advisory US Smaller Companies PLC GBP (BASC:LON), 1,298 | Oakley Capital Investments Ltd Registered (OCI:LON), 476 | NB Private Equity Partners Limited Class A (NBPU:LON), 2,100
Bargains galore
JPMorgan US Smaller Companies Investment Trust PLC GBP (JUSC:LON), 386 | Jupiter Green Investment Trust PLC (JGC:LON), 182 | CC Japan Income And Growth Trust (CCJI:LON), 0 | Brown Advisory US Smaller Companies PLC GBP (BASC:LON), 1,298 | Oakley Capital Investments Ltd Registered (OCI:LON), 476 | NB Private Equity Partners Limited Class A (NBPU:LON), 2,100
- Published:
14 Sep 2021 -
Author:
Thomas McMahon, CFA -
Pages:
6
We last updated our discounted opportunities portfolio in July. Since then markets have been grinding higher but discounts have not moved – and perhaps slightly widened. We think readers will largely agree that it is hard to have conviction about the direction of markets and leadership at the moment, which may explain the static picture regarding discounts. At a directional level, the easy gains in the recovery have been made, and government support schemes have still to be wound down, creating uncertainty about the real health of companies and economies. At the market leadership level, the growth/value distinction was the main driver of markets from the start of the pandemic to the end of the reflationary rally in the first quarter of 2021. Since then, the degree of divergence of the relative returns of the two styles has fallen, and we would argue it is not clear it will drive markets to the same extent over the coming months. One possibility we have been alluding to over the past year is that after the initial recovery, it will be quality that is the most attractive characteristic, as economies are likely to be struggling with the impact of the pandemic for some time to come, despite the optimism of the relief rally. Supply chain issues, wage inflation and declining macro data from the US and China are all possible indications of a more troubled period to come. We think this is more than a summer lull, therefore. One weight on sentiment is likely to be concerns about the impact of the delta wave, which was only really picking up steam at the start of the period. If this is the case, the current ‘back to school’ period could be key. If the UK and Europe manage to open schools and return to the office without kicking off a new wave that needs to be controlled via lockdowns, this could be the catalyst for a fresh wave of optimism. Yet with support schemes in the UK winding down at the same time, it is hard to call how everything will play out.