Equity markets gained over the first part of the month only for virus concerns to re-emerge. Slower than anticipated vaccine rollouts and unease over new mutations of the virus led to a pull-back. Markets were rattled further by aggressive retail-led short squeezes in a number of heavily shorted US stocks which raised fears over the viability of a small number of hedge funds. This ‘gammafication’ of markets is unhealthy, impedes price discovery, and highlights the misallocation of capital created by QE. It should be noted that this does not pose a systematic risk and will not be the catalyst for a material correction. High absolute valuations in certain market segments, however, may lead to volatility. The fund returned -0.9% versus the MSCI Europe TR Index that returned -1.9%.

Despite stretched valuations we remain fundamentally constructive on the outlook. Outside the risk of a vaccine-evading mutation, the biggest risk to markets is the premature tightening of policy. In this regard policymakers have generally been at pains to emphasise that they are prepared to let the economy run ‘hot’ rather than risk choking off the recovery. Such a policy is eminently sensible when long-term interest rates are exceptionally low and the global economy is characterised by large output gaps. President Biden’s proposed $1.9 trillion stimulus plan – equivalent to 9% of GDP – epitomises this thinking. Fiscal stimulus is less explicit in the UK, but the Chancellor has indicated his desire to make any fiscal tightening back-end loaded. In Europe, however, the debate appears less clear-cut. German fiscal conservatives pushed back on suggestions by Helge Braun, a close aide of Angela Merkel, that the ‘debt brake’ enshrined in the constitution be formally suspended for longer than is currently envisaged.

Alpha Financial Consulting rose on little newsflow. The company is hosting a capital markets day at the end of the month that will highlight the core drivers for growth within the North American business and the insurance client segment. These both offer a significant market opportunity for the group and are key drivers of its long-term growth. Despite the recent appreciation in the shares, we think there is material upside as the company begins to leverage its international footprint. RWS gained as some of the ‘technical’ selling that had weighed on the stock since its merger with SDL abated. The execution risks associated with the merger should not be underestimated, but equally the potential upside is significant if management can harness the value of SDL’s technology with RWS’s client relationships.

Prudential fell as it revealed that it would no longer IPO its US subsidiary, Jackson Life, but instead would spin it off. Consequently, Prudential will now not receive a dividend from Jackson and will need to raise a small amount of capital to fund its Asian growth ambitions. If this were to be via a listing in Hong Kong or elsewhere in Asia it would facilitate easier comparisons with AIA, its main peer. Financial stocks Allianz and Lloyds, as well as aviation services provider, Menzies, declined as concerns over the pace of vaccinations and the emergence of new, potentially more dangerous, virus variants led to nervousness around the speed of the economic recovery.

Trading was limited.

Equity markets gained over the first part of the month only for virus concerns to re-emerge. Slower than anticipated vaccine rollouts and unease over new mutations of the virus led to a pull-back. Markets were rattled further by aggressive retail-led short squeezes in a number of heavily shorted US stocks which raised fears over the viability of a small number of hedge funds. This ‘gammafication’ of markets is unhealthy, impedes price discovery, and highlights the misallocation of capital created by QE. It should be noted that this does not pose a systematic risk and will not be the catalyst for a material correction. High absolute valuations in certain market segments, however, may lead to volatility. The fund returned -0.9% versus the MSCI Europe TR Index that returned -1.9%.

Despite stretched valuations we remain fundamentally constructive on the outlook. Outside the risk of a vaccine-evading mutation, the biggest risk to markets is the premature tightening of policy. In this regard policymakers have generally been at pains to emphasise that they are prepared to let the economy run ‘hot’ rather than risk choking off the recovery. Such a policy is eminently sensible when long-term interest rates are exceptionally low and the global economy is characterised by large output gaps. President Biden’s proposed $1.9 trillion stimulus plan – equivalent to 9% of GDP – epitomises this thinking. Fiscal stimulus is less explicit in the UK, but the Chancellor has indicated his desire to make any fiscal tightening back-end loaded. In Europe, however, the debate appears less clear-cut. German fiscal conservatives pushed back on suggestions by Helge Braun, a close aide of Angela Merkel, that the ‘debt brake’ enshrined in the constitution be formally suspended for longer than is currently envisaged.

Alpha Financial Consulting rose on little newsflow. The company is hosting a capital markets day at the end of the month that will highlight the core drivers for growth within the North American business and the insurance client segment. These both offer a significant market opportunity for the group and are key drivers of its long-term growth. Despite the recent appreciation in the shares, we think there is material upside as the company begins to leverage its international footprint. RWS gained as some of the ‘technical’ selling that had weighed on the stock since its merger with SDL abated. The execution risks associated with the merger should not be underestimated, but equally the potential upside is significant if management can harness the value of SDL’s technology with RWS’s client relationships.

Prudential fell as it revealed that it would no longer IPO its US subsidiary, Jackson Life, but instead would spin it off. Consequently, Prudential will now not receive a dividend from Jackson and will need to raise a small amount of capital to fund its Asian growth ambitions. If this were to be via a listing in Hong Kong or elsewhere in Asia it would facilitate easier comparisons with AIA, its main peer. Financial stocks Allianz and Lloyds, as well as aviation services provider, Menzies, declined as concerns over the pace of vaccinations and the emergence of new, potentially more dangerous, virus variants led to nervousness around the speed of the economic recovery.

Trading was limited.