It’s August and the world continues to perform a balancing act from the effects of the ongoing global pandemic. Last month saw positive economic signs from vaccine development progress, better than anticipated corporate earnings and continued fiscal government support. On the flip side, growing global infection rates and uncertainty on sustained economic growth continued to weigh on people’s minds.
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?
- At the beginning of the month China’s stock market enjoyed an 8-day rally with the Shanghai Composite Index rising to its highest level since 2018. Investor optimism remained high in the region as China’s economy grew by 3.2% and the country’s manufacturing sector showed strong recovery signs.
- After four days of deliberation, European Union leaders agreed on a £677 billion coronavirus recovery plan focused on grants and loans to help the hardest hit parts of the economy.
- Relations between the US and China deteriorated significantly as the Trump administration closed down the Chinese consulate in Houston over accusations of espionage.
- Global stocks saw a boost mid-month thanks to optimism on initial findings from the two most promising vaccine trials, run by North American biotech company Moderna Inc. and the University of Oxford/AstraZeneca.
- Tech heavyweights including Apple, Amazon and Facebook posted a combined $28 billion in profit in their respective quarterly earnings reports.
And how are investments performing?
Growth in equity markets remained strong despite rising concerns over COVID-19 cases in the US and a second wave across the UK and Europe.
At Wealthsimple, our portfolios continued to see consistent gains.
- This month's best performer? The currency hedged US equity investment in our portfolios was up 5.58%. US equities had a strong month but with the dollar weakening in value, they only grew by 0.15% when converted back to pounds. This loss in value shows the importance of managing currency exposure and is why we hedge a share of your overseas investments (a deep dive into hedging here).
- This month's worst performer? Japanese equities were down -4.76% after being one of the top performing assets in your portfolio for 2020. Why? Market volatility on the last day of the month impacted some Asian investments more than European and North American ones, due to the time differences. In the long run, Japanese equities remain valuable for growth opportunities and the diversification they provide.
Lastly, what does all this mean for me and my money?
You wouldn’t be mistaken if you’ve noticed that your sibling, gran and favourite coffee barista have suddenly taken up trading single stocks in the last couple of months. What gives? Since March’s market downturn there has been a significant uptick in active investing as individuals look to take advantage of the strong growth in equity markets.
At Wealthsimple we still believe that the smartest way to grow your money long term is to have a diversified, low-cost portfolio that you contribute to regularly. But, that doesn’t mean there’s no place for buying and selling individual stocks. Our investment team would recommend that you keep it to an amount you’re comfortable losing which for the average person is 5-10% of your overall investment portfolio. Why? Because research has shown that passive investing beats the traders who pick individual stocks 75% of the time.
That’s all for now but if you have any questions you can always reach out to firstname.lastname@example.org or book a call with a member of our investment team here.