April 2021

Second Quarter 2021

View from the Square

The end of the first quarter of 2021 marks a year since the low point of the crisis inflicted on markets by the pandemic. A year that has seen tremendous swings in investor positioning within equities and across asset classes. We wrote last year of markets tending to look ahead, by about six months, of where the world is now, and that has very much played out in markets: record low yields and a world living at home saw huge demand for growth and technology stocks; and news of the vaccine in November last year shifting investors views to the great re-opening, that favoured cyclically sensitive assets. The winners in this rotation have been those with flexibility to adapt – active managers.

The fund management industry has had a tough time since the great recession in 2008, with a rising tide of Quantitative Easing lifting all boats. Taking any form of economic or macro view has been challenging as central banks have continuously pumped liquidity into markets and kept rates at record low levels, thus raising asset prices across the board. So, it made good sense, for a long period of time, to simply buy the lowest cost exposure to stocks and bonds that one could get one’s hands on.

The last 12 months has seen a renaissance in active management, that we think is well set for the next decade (due to continuing central bank action). We are seeing clear evidence in fixed income and equity strategies that flexibility is critical in adding value. Within equities, the shift from a growth investment style to a value investment style – that started in November last year – has continued apace to the end of the first quarter. From this point, we believe purposeful and considered security selection is well placed for the road ahead.

Whilst investors often focus on equity markets, the first quarter of 2021 also showed the difficulties with a passive fixed income approach, with many bonds starting the year guaranteeing investors a negative absolute return. Consider any form of inflation and the picture becomes even less attractive. However, active strategies have proved their worth considerably this year, after one of the weakest periods for fixed income in decades.

We are not advocating the death of passive investing and do belief that passive funds can still provide good, low cost, building blocks in a portfolio. Rather, we suggest that actively managed funds and flexible mandates are perhaps better positioned for what lies ahead – with returns and asset flows starting to reflect this too.

Opinions constitute our judgment as of this date and are subject to change without warning. The information in this document is not intended as an offer or solicitation to buy or sell securities or any other investment or banking product, nor does it constitute a personal recommendation. Past performance is not a reliable indicator of future results. Forecasts are not a reliable indicator of 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. Where an investment involves exposure to a foreign currency, changes in rates of exchange may cause the value of the investment, and the income from it may go down as well as up. Interested parties should seek advice from their Investment Adviser. CS Investment Managers is a trading name of CS Managers Ltd, 43 Charlotte Square, Edinburgh EH2 4HQ. CS Managers Ltd is authorised and regulated by the Financial Conduct Authority. Registered in Scotland SC231678. Registered Office Edinburgh Quay, 133 Fountainbridge, Edinburgh EH3 9BA.


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