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Value returns, Cummings goes

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The Noise

• On Monday, pharmaceutical company Pfizer announced that their vaccine can prevent more than 90% of those injected from contracting Covid-19 according to their preliminary testing of 43,500 people. Markets rallied strongly on the day with the UK FTSE 100 index up nearly 5%. Cyclical companies in particular benefited from the news after weeks of being overlooked in favour of tech names, which fell this week.
• President-elect Joe Biden is preparing for office and has stacked his transition team with policy academics and former Obama officials, a clear break from Trump’s tilt towards industry leaders. President Trump continues to challenge the election results although his legal actions have yet to prove anything that looks as if it might overturn the result.
• Two key advisers to Boris Johnson resigned yesterday as tensions rise in the Prime Minister’s inner circle. Communications Director Lee Cain and Chief Adviser to the Prime Minister Dominic Cummings, both of whom were at the forefront of the pro-Brexit vote, will leave Downing Street at a decisive time amidst the second national lockdown and with pandemic death rates rising again.

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The Numbers

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The Nuance

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This week has heralded a significant change in tone for markets. After months of outperformance by tech stocks such as Amazon, Apple and Microsoft, the tides changed this week and many investors found themselves wrong-footed by the switch in sentiment. With Pfizer’s vaccine news providing a glimmer of hope for a return to normality, cyclical stocks in industries such as travel, banking and hospitality staged a significant rally.

With big tech having powered upwards seemingly unchecked for months, more complacent market participants may well have found themselves caught up in the herd mentality, filling portfolios with these “Covid-safe” stocks which are either largely unaffected by – or even benefit from – lockdown measures. As the mood music changed, many will have ended Monday having failed to participate in a significant rally in value stocks.

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As such, this has the potential to be the start of a regime change as investment managers recognise that omitting these names from portfolios leaves scope for material underperformance. Whilst Monday was a highly unusual day in markets, positive  vaccine-related updates are likely to provide repeats in this pattern and could provide the tailwind to value stocks that they have so desperately needed.

We used the week to pare back on the cyclical names in portfolios which rallied hard whilst also capitalising on the opportunity to top up in some of our tech names which found themselves out of fashion for the first time in months.

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Quote of the Week

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“I’m not throwing my children over the gate!”

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This joins the infamous British road sign which reads “SIGN NOT IN USE” in the category of signs you really wouldn’t think are necessary. A French school in Avignon has erected signs around the perimeter of the school warning parents not to throw their children over the 6ft fence. The text reads “I’m not throwing my children over the gate” and is accompanied by a helpful image depicting a stick-man image throwing a smaller stick-man over a fence. The school’s head teacher said she’d had enough of irresponsible parents who were arriving after the bell and literally throwing their children over the fence.

Source: metro.co.uk

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If you require assistance on any ethical and/or fraud issue which may have arisen pursuant to your interaction with Sanlam Private Wealth Mauritius Ltd, please contact the Sanlam Fraud and Ethics Hotline at +27 12 543 5324 which hotline is operated by an independent third party and guarantees anonymity. If you are unable to call the hotline you may send an e-mail to sanlamfraud@kpmg.co.za or submit a report online at www.thornhill.co.za.

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