It's June and the world is processing the effects of the ongoing global pandemic as well as the importance of the Black Lives Matter movement, protesting both present and past racial injustices. At Wealthsimple we stand in solidarity with the Black community and understand this is a challenging time for many of our clients and employees.
Last month we started to see people adapt to a new kind of normal as COVID-19 lockdown measures eased globally and economic activity cautiously picked up again. The snapshot view? May continued to build on April’s gains in the markets, and issues that the pandemic had temporarily put on hold re-surfaced, including Brexit negotiations and the US-China trade deal.
As always through this monthly update, we’ll aim to give you an idea of what’s happening, how investments are performing and what this all means for you.
So, what happened in the markets last month?
- Globally cases of COVID-19 continued to slow and lockdown measures were eased which gave investors renewed optimism of economic activity starting up again.
- The Bank of England sold a government bond with a negative yield for the first time. The move was interpreted by many as a step towards a broader negative interest rate environment. (A deep dive into how interest rates work here).
- On the Brexit front, the UK and the EU struggled to find any common ground on a trade deal with negotiations anticipated to continue throughout the summer months.
- US-China trade relations were put back in the spotlight with rising tensions over the handling of the coronavirus pandemic and the Chinese government’s proposed security legislation for Hong Kong.
And how are investments performing?
As markets continued to recover and build on April’s momentum popular indices saw favourable gains with the S&P up 26.8% and the MSCI up 23.8% since 23rd March. The FTSE 100 also enjoyed a 22.7% gain over the same period.
At Wealthsimple our portfolios continued to build on their recovery from March’s downturn. Growth was steady and there were significant gains across the majority of portfolios.
- This month's best performer? The unhedged North American equity holding was up 10.05% over the month. Share prices of businesses in the US rebounded significantly after being severely hit earlier in the year with market volatility.
- This month's worst performer? The UK Government Bonds , which grew 0.10% over the month. In periods of strong equity growth more conservative investments (like bonds) tend to be muted. The reverse is true in periods of slow equity growth. This works in your favour because when one asset type is up, the other is likely to be down. And this diversification in your assets ultimately makes your investment portfolio better prepared to weather market swings.
Lastly, what does all this mean for me and my money?
The last three months have been a rollercoaster ride in the world and in the markets. Between March’s market downturn, and the rally that followed, it has been hard to completely separate our emotions from our finances.
The good news? All our Wealthsimple portfolios have returned to positive growth. This has come after experiencing one of the sharpest downturns (and sharpest recoveries) that we’ve seen over such a short period of time. And that doesn’t mean that returns won’t go down again. But, if the last three months have shown investors anything, it’s the value of drowning out the daily headlines and sticking to your long-term plan. When markets go down history has shown us that they are likely to go up again. And when they do, you want to be in a position to enjoy the rebound.
The bottom line: if you aren’t planning on accessing your investments for years to come (remember the 3-5 investment horizon?) then you should sit back, not be tempted to look at your returns daily and let us take care of the rest. Oh, and setting up a Direct Debit is a pretty good idea too.