Global Equity Strategy: December 2020

The Democrats won the USA election and as we write this have also won The Senate. Equity markets are consequently underpinned by both easy money and the expectation of a fiscal spending programme unencumbered by opposition in Congress. If done properly this fiscal programme will boost the productivity of the US capital stock and is to be welcomed. So the prospects for sustainable growth look better but at some point the debt levels should alarm bond investors. The US 10 year note has broken through 1% from a low of 70 basis points at the height of the pandemic panic. The shape of the yield curve matters much more. At 1.5% on the 10 year note we have a curve as steep as we did in 2017 when we had a 'taper tantrum' and a sell-off in risk assets. Consequently we believe parts of the equity market are vulnerable to a correction and remain convinced in not owning the fashionable but expensive companies. Anti-trust investigations will also be a headwind for these companies.

Consequently we argue for a bias to Value and small cap in the USA and returns to these factors have already started to pick up. Infrastructure stocks were strong with AES rising 15%.

Green is happening in the US and will continue to do so under a Biden administration.

In Asia Japan continued its rehabilitation with the market rising modestly. Shin-Etsu chemical, a provider of chemical coatings for the semiconductor manufacturing industry, was again strong, rising 5% in the month and about 50% for the year. It is our biggest position in the GHC 30 strategy. With the steepening yield curve, Financials performed better. We own no banks but did well through our holdings in Nomura and Orix in Japan and Legal and General in the UK and MFC in Canada.

European markets were strong but Covid-19 is forcing curfews and economic activity and profit forecasts are going to be coming down. We remain underweight.

Our global equity strategies marginally underperformed their respective benchmarks in December but the GHC 30 or High Conviction especially outperformed strongly in 2020.

We remain fully invested with a slight Value bias and unhedged for investors.

Delft Partners ~ January 18th 2021