Welcome to September. Last month the stock market continued to outpace expectations while global economies worked to get back on track. Governments ended many short-term fiscal support programs and encouraged people to return to school and work.
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?
- The COVID-19 vaccine development race continued to bolster global stocks. The US signed a $1.5 million agreement with biotech firm Moderna Inc. while the EU progressed on talks with German firm CureVac for 225 million doses.
- Two highly anticipated IPOs were announced in August including Airbnb on the New York Stock Exchange and Alibaba’s fintech arm, Ant Group, on the Shanghai and Hong Kong stock exchanges.
- Trade talks progressed between the US and China despite rising tensions between the two parties over blame for the spread of COVID-19 and threats by the US to ban Chinese owned TikTok and WeChat.
- The US dollar reached its lowest level in 27 months. While bad news for some, a weakened dollar creates opportunities for nations that export to the US to enjoy more competitive pricing.
- At the beginning of the month the price of gold reached historical highs as the income generated on other safe haven assets, such as US treasuries or UK gilts, continued to falls.
And how are investments performing?
August was a month of unprecedented growth for the US’s three biggest stock indexes largely driven by the performance of US tech companies. Globally, markets continued to rally from post-pandemic lows with The MSCI World Index (comprising of stocks in 23 developed nations) growing by 6% over the month.
At Wealthsimple, the majority of our portfolios continued to see positive growth over August:
- This month's best performer? The currency-hedged North American equity fund led the way once again, growing by 7.31% across the month. US equities have continued to outperform their global peers but with the dollar falling in value, your hedged investment (removing the impact of currency markets) has continued to outperform its unhedged alternative. A deep dive into hedging here.
- This month's worst performer? The UK equity investment fell -3.61% across the month. The UK equity market has struggled to keep up with its global peers with several factors at play including a strengthening pound (making domestic production more expensive), concerns on the UK’s economic outlook and uncertainty over Brexit trade talks being finalised by year end.
Lastly, what does all this mean for me and my money?
As the stock market continues to climb many pundits, analysts and presenters have turned their attention to predicting what will happen next. Will Trump get re-elected? Will the UK successfully negotiate a Brexit withdrawal deal? The thing about predictions is they are just that. And while strong growth in US equity markets has made it tempting to make ‘bets’ on the outcome of certain events the history of the world has shown that humankind is not very good at predicting the future.
So what does this have to do with your money, you ask? Active investing - people picking stocks and bonds and other financial instruments - is based on predictions. Passive investing, on the other hand, is based on acknowledging that we don’t know the answers except in the most macro sense - that human progress means markets move up over the long run. And while you can do really well with active investing, countless pieces of research (including this recent one ) have shown how passive investments outperform their active counterparts in the long run by focusing on diversification instead of making short-term bets.
The bottom line: smart investors know that their behaviour shouldn’t change whether the market is climbing high or hitting rock bottom. The key to long-term success is to stay focused on what you can control like paying low fees, being invested in a globally diversified portfolio and automating your finances where you can so you don’t react out of emotion and ignore the wisdom of your long term plan.
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.