May 2021 Market Review

Collective Wealth Advisers partner with Innova Asset Management to build and manage sustainable and robust investment portfolios for our clients, and to monitor investment market and economic conditions.  Our Market Review reports are collated with input from Innova.

May was a positive month for all major asset classes, with domestic equities and alternatives the strongest performers at an asset class level. At the end of the month, this trend had continued and performance across the board was strong both in a relative and absolute sense, not just for the month, but across multiple time periods.

Outlook

The outlook for investment markets and economies are somewhat different, though the media often treats them as though they are synonymous with each other. Whilst it is clear we are not out of the woods regarding the pandemic, economies globally are growing strongly, helped by

unprecedented government spending. The past decade has seen Central Banks act alone to restore sustainable economic growth through stimulus measures, but now, they also have assistance from Governments in the form of deficit spending.

However, strong economic growth does not necessarily equal strong market growth, and many markets seem to have already fully priced in the current recovery we are experiencing – meaning any shock to this could cause markets to re-assess pretty quickly. Inflation remains the main concern troubling markets presently, as they digest the risk of higher wage growth and subsequent price inflation, but this is unlikely to occur unless economies remain strong. Our research partners at Innova stated last month that they thought the market might be getting a bit ahead of itself, and recent bond market rallies confirm this view may have been correct.

Asset Class Forecast

We continue to have concerns around the US market, trading at valuation ranges only ever seen before in the tech bubble. Is the business outlook so attractive that it warrants such incredible valuations? We doubt it. No market in history has ever traded at these levels and delivered positive returns in the subsequent 10 years. Government spending can’t fix a valuation problem, only real growth and productivity gains can.

Given the unprecedented stimulus from Governments and Central Banks globally, we believe Gold continues to be a likely beneficiary. The current jovial market feel means Gold has been a soft performer, but we think it will be a good hedge if something upsets markets

We have taken a deliberate position in value equities and value regions/sectors. This has paid off of late, but we will continue to balance this bias with quality equities in case markets turn

We have tilted to equity markets that have more attractive valuations – Australia, European equities, Emerging markets and Asia (including Japan). Unfortunately, our preference for robust and sustainable growth is going to be hard to come by for the next few years, with a global economic slowdown being demonstrated in the economic data, and the over-arching trade tension has reduced our conviction in this area.

For more information on market conditions and your investment options, book an appointment with Collective Wealth Advisers.  We tackle today, and tomorrow, together!