August market update

Author:

David Cooke

Co-Chief Investment Officer ,
Saltus Asset Management Team

August was another eventful month for investors which ultimately ended well. As in previous months, sentiment swung on a combination of US economic data points and central bank utterances. The economic data was noisy, clouded by the spread of the delta variant, which made it harder to discern underlying trends. Volatility was high, fuelled by thin summer trading and skittish sentiment. Gold, for example, fell -7% in a day post a strong US employment report, before recovering steadily into month-end.

Political risk continued to influence events in the Far East, with the implications of China’s ‘’common prosperity’’ policy continuing to be mulled over by investors. Balancing the needs of communist social policies with the demands of Western capital is an issue that will take time to work through and although regional stock markets recovered some of the ground lost in July, the longer run investment implications remain unclear. Late in the month, prospects of a snap election in Japan sparked a strong rally in Japanese stocks, which had been quiet of late.

“Balancing the needs of communist social policies with the demands of Western capital is an issue that will take time to work through and although regional stock markets recovered some of the ground lost in July, the longer run investment implications remain unclear.”

Towards the end of August additional guidance on future Federal Reserve policy was delivered as part of the annual Jackson Hole symposium. Once again, the Fed neatly threaded the needle of market expectations by communicating that their bond-buying programme would indeed begin to wind down before year-end, but that this action is not linked to any change in interest rates. The net effect was taken by investors as confirmation of the very gentle withdrawal of the emergency support provided in such abundance since the Covid outbreak last year. A similar message is also coming from the other major central banks and the combined effect made August, and the summer as a whole, a strong period for risk assets and portfolios.

“Once again, the Fed neatly threaded the needle of market expectations by communicating that their bond-buying programme would indeed begin to wind down before year-end, but that this action is not linked to any change in interest rates.”

Interestingly, throughout the month, real time data on investor positioning showed a clear global trend of exposures being reigned in and evened out. Profit taking across all asset classes was in evidence and given decent performance year to date, it is perhaps unsurprising that there is less of an appetite to maintain ‘big bets’ as we head into year end. The potential for inflation data to unsettle bond markets just as the Fed is beginning to withdraw its support is also very real, and valuations remain generally high. Although the outlook remains favourable it is also likely to stay choppy, with the pace of returns slowing. Some reduction in risk appetite therefore seems sensible.

Portfolio Performance

Portfolios overall had a good month, driven by exposures to riskier assets, in particular equities in the Japan/Asia Pacific region, for reasons described above. The range of returns was +0.8% to +2.7%, with the higher risk mandate doing best. Outside of gold, few assets made a meaningful negative contribution.

On behalf of the Saltus Investment Committee, September 2021

The views expressed in this article are those of the Saltus Asset Management team. These typically relate to the core Saltus portfolios. We aim to implement our views across all Saltus strategies, but we must work within each portfolio’s specific objectives and restrictions. This means our views can be implemented more comprehensively in some mandates than others. If your funds are not within a Saltus portfolio and you would like more information, please get in touch with your adviser. Saltus Asset Management is a trading name of Saltus Partners LLP which is authorised and regulated by the Financial Conduct Authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. Capital is at risk. You may get back less than you invested. Tax rules may change and the value of tax reliefs depends on your individual circumstances.

August market update

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August market update

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