WEBVTT 1 00:00:10.720 --> 00:00:15.680 Hello and welcome to this September episode  of Monthly Market Insights. I’m Phil Attreed,   2 00:00:15.680 --> 00:00:20.320 Barclays Head of Investment Consulting. Once  again I’m joined by Will Hobbs our Chief   3 00:00:20.320 --> 00:00:24.400 Investment Officer as we explore what's  been going on in the world of investing.   4 00:00:24.960 --> 00:00:31.200 So as many clients, colleagues, and investors turn  their attention to long-awaited summer holidays,   5 00:00:31.200 --> 00:00:35.920 it seems investment markets thankfully seem  to have largely behaved themselves over the   6 00:00:35.920 --> 00:00:40.000 last couple of months. But was there any  news flow that caught your attention, Will?  7 00:00:40.000 --> 00:00:44.880 Yes, they behaved better than our children, I have  to admit towards the end, who started to fall out   8 00:00:44.880 --> 00:00:50.000 after a too-long summer holiday so it's time for  them to go back to school. But I think if you   9 00:00:50.000 --> 00:00:53.920 look at markets, Phil, quite a lot of the focus  has been on the Delta variant, that much more   10 00:00:54.560 --> 00:01:00.000 transmissible strain of COVID and that's put under  a lot of duress those zero-COVID strategies and   11 00:01:00.000 --> 00:01:09.840 it's also led to some worrying data points. The  UK is as we talked about before is patient zero in   12 00:01:09.840 --> 00:01:15.200 this one, so people are watching very carefully  to see the economic impact of Delta and how   13 00:01:15.920 --> 00:01:23.120 at least for a highly vaccinated or high immunity  economy and how it fares amidst the Delta strain.   14 00:01:24.160 --> 00:01:29.600 Actually if you look at the news from the UK  has been relatively encouraging on that front;   15 00:01:30.640 --> 00:01:34.160 we'll see what happens when the schools  have returned, we'll see what the data does   16 00:01:35.040 --> 00:01:40.640 post that. It's obviously a much more difficult  story so far Delta for those less vaccinated areas   17 00:01:40.640 --> 00:01:45.520 particularly in emerging markets. The other piece  of news that certainly caught my eye anyway was   18 00:01:45.520 --> 00:01:55.600 that regulatory crackdown in China which nominally  is part of a drive to even up the distribution of   19 00:01:55.600 --> 00:02:01.600 wealth and opportunity in China. And actually in  that context that's part of a story that's made   20 00:02:01.600 --> 00:02:09.280 it quite a tough year for emerging market equities  so far. All told, looking at it through the lens   21 00:02:09.280 --> 00:02:14.320 of both asset class moves and indeed what's  been going on underneath those asset classes,   22 00:02:16.080 --> 00:02:21.440 the sense you get is that investors around the  world have slightly trimmed their expectations   23 00:02:21.440 --> 00:02:31.200 of global growth from that very positive first  quarter. So growth is certainly peaking unevenly around 24 00:02:32.000 --> 00:02:38.684 the developed world, you're seeing that in  the data points. But what lies beyond that peak is not looking 25 00:02:38.684 --> 00:02:45.465 too shabby at the moment. So that's broadly it; it remains a complicated picture  doesn't it, I think that the way to put it. 26 00:02:45.580 --> 00:02:50.400 It does. It’s been a quiet summer for the markets   27 00:02:50.400 --> 00:02:55.360 but still work to be done as you say and the  investment team here at Barclays have made a few   28 00:02:55.360 --> 00:03:00.000 minor adjustments over the summer and that leaves  the portfolios that we run on behalf of clients,   29 00:03:00.720 --> 00:03:04.880 I suppose, Will, what you would call  relatively neutral from a tactical position.   30 00:03:04.880 --> 00:03:12.080 And so is it fair for me maybe to interpret from  that basically that means that in the short-term   31 00:03:12.080 --> 00:03:17.200 view, the team are maybe not seeing so many  opportunities over and above the returns that   32 00:03:17.200 --> 00:03:21.520 they might see from a strategic view, that  being the long-term asset allocation that we   33 00:03:21.520 --> 00:03:26.720 would normally apply to our investment portfolios? Well Phil, you put it a lot clearer than I ever   34 00:03:26.720 --> 00:03:29.920 would, so thank you for expressing it like  that. I think that's accurate and I think   35 00:03:30.960 --> 00:03:37.200 you've got to start from the perspective of or you  start from the base assumption when you're looking   36 00:03:37.200 --> 00:03:42.240 at markets is that markets are efficient. What  I mean by that as we've described before is that   37 00:03:43.200 --> 00:03:48.960 new news is incorporated quickly and efficiently  into market pricing to reasonably accurately   38 00:03:48.960 --> 00:03:57.280 reflect the range of probabilities out there  on any particular event or a specific area.   39 00:03:58.160 --> 00:04:02.960 Now that's reasonably well-established  academically and statistically. So that's got to   40 00:04:02.960 --> 00:04:09.760 be your starting point. If that is your threshold,  then you've got to be ready for periods where the   41 00:04:09.760 --> 00:04:15.440 prevailing thing is to sit on your hands a little  bit and just look for opportunities. I don't think   42 00:04:15.440 --> 00:04:19.120 you start from the position of “I have to have  a tactical position”, “I have to have bets on   43 00:04:20.240 --> 00:04:25.040 at all times”. I think that's part of the  discipline. Now if you look at the performance   44 00:04:25.040 --> 00:04:29.920 over the last decade of our Tactical Asset Allocation,  you can see that the team are good at finding the   45 00:04:29.920 --> 00:04:35.120 opportunities when and if they arise. But I think  part of that discipline is also knowing when not   46 00:04:35.120 --> 00:04:40.240 to stretch yourself and when not to have a  position for the sake of having a position.  47 00:04:40.960 --> 00:04:45.120 It’s really a case of just letting markets  do their job but you know what I’m going to   48 00:04:45.120 --> 00:04:50.000 ask you next though, Will, with us being  tactically neutral. And it always seems   49 00:04:50.000 --> 00:04:54.640 maybe the obvious question for our clients  to ask in this situation: does that mean   50 00:04:54.640 --> 00:04:59.440 we can or should wait to get invested if we  have got new money to put into the markets?  51 00:04:59.440 --> 00:05:04.000 Well, Phil, I’ll probably need you to translate  my garbled thoughts on this as usual because   52 00:05:04.000 --> 00:05:10.720 it's a really difficult concept to get your  head around; it’s how can you plausibly have   53 00:05:10.720 --> 00:05:15.680 a different view of, say, stock markets on a  three- to six-month view versus a long term view   54 00:05:17.680 --> 00:05:21.520 particularly if you sensibly admit that  you have very little visibility over either   55 00:05:21.520 --> 00:05:26.240 time frame in reality. I think there's a couple  of things to really talk about here is: one,   56 00:05:27.840 --> 00:05:32.000 it's really about conviction and the level of  conviction which you can muster. So if you look   57 00:05:32.000 --> 00:05:35.760 at how we design the Strategic Asset Allocation  and what it's for, and you should think of these   58 00:05:35.760 --> 00:05:39.520 two activities entirely differently, they're  entirely different investing disciplines   59 00:05:40.080 --> 00:05:45.840 Strategic and Tactical Asset Allocation, short  term/long term and we deploy very different   60 00:05:47.120 --> 00:05:51.760 techniques in order to make the most of the  opportunities out there. With regards to the   61 00:05:51.760 --> 00:05:57.200 Strategic Asset Allocation, just remember that, you  know I’ve talked about this a lot, that really we   62 00:05:57.200 --> 00:06:05.440 can't know what lies ahead on a 5-to 10-year view.  But what a careful study of history suggests that   63 00:06:05.440 --> 00:06:11.680 we are right in assuming that growth is the norm  not the exception and that we should position for   64 00:06:11.680 --> 00:06:17.760 such a thing. But we can't know when and where  that growth is going to take place exactly so   65 00:06:17.760 --> 00:06:22.560 we want to be sitting in wait, ready with our  Strategic Asset Allocation to try to prepare   66 00:06:22.560 --> 00:06:26.880 ourselves and be ready to take advantage of  all opportunities out there and that as you   67 00:06:26.880 --> 00:06:31.200 rightly say that's the driving force of portfolio  returns, that's where most of your assets will be   68 00:06:32.080 --> 00:06:38.720 allocated to. Now the next bit and this is where  the conviction comes in, your tactical allocation   69 00:06:38.720 --> 00:06:43.920 is really about those short-term tweak. Like we  said before there's some opportunities and even   70 00:06:43.920 --> 00:06:49.440 those efficient markets crop up to be able to add  to that return but that necessarily should be a   71 00:06:49.440 --> 00:06:56.480 much lower conviction activity. You don't want  to be going all in, all out based on that kind   72 00:06:56.480 --> 00:07:01.840 of thing. That would be mistaking or massively  exaggerating your ability to see the near future.   73 00:07:01.840 --> 00:07:08.320 So what we do is we tend to do this at the very  fringes of the portfolio and try and add literally   74 00:07:08.320 --> 00:07:15.120 tens of basis points a year because we feel that  50 to 75 or whatever we can generate basis points   75 00:07:15.120 --> 00:07:20.320 a year compounded over time is an incredibly  powerful extra tool of returns. But and this   76 00:07:20.320 --> 00:07:28.960 is the most important point to try and time, to  try and do Strategic Asset Allocation or try and   77 00:07:29.520 --> 00:07:35.600 bring all of your assets into play and invest  according to a tactical framework by going in   78 00:07:35.600 --> 00:07:39.360 and out and saying, “now's the time to invest, I can  really see it”, that's massively exaggerating your   79 00:07:39.360 --> 00:07:44.000 ability to see the future. So just remember that  Strategic Asset Allocation is about designing a   80 00:07:44.800 --> 00:07:50.160 broad net where you're trying to capture as much  of the opportunity set out there; the tactical is   81 00:07:50.160 --> 00:07:54.880 really just about adding little bits of alpha,  what's it called, extra returns here and there.   82 00:07:54.880 --> 00:07:59.520 It's the same thing with regards to manager  selection; we wouldn't just own one stock in   83 00:07:59.520 --> 00:08:04.480 America and hope that that was going to do it for  us. What we try and do is pick managers that will   84 00:08:04.480 --> 00:08:09.200 give us little bits of advantage here and there  and take advantage of those little mispricings   85 00:08:09.200 --> 00:08:15.440 and opportunities out there to add again tens of  basis points on top of that Strategic Asset Allocation.  86 00:08:15.440 --> 00:08:20.320 Finally, what about the near-term outlook from  your perspective? It's maybe not just politics   87 00:08:20.320 --> 00:08:24.080 on the home front and it's certainly been  grabbing headlines this week. But it isn't   88 00:08:24.080 --> 00:08:29.600 just about the home front. For a start, we have  looking at the news channels this morning,   89 00:08:29.600 --> 00:08:35.360 we've got some quite exciting looking German  elections coming up soon as well I believe.  90 00:08:35.360 --> 00:08:39.360 Yes, and you're right, the home front is always  interesting to us isn't it? But we've got to   91 00:08:39.360 --> 00:08:44.880 remember that in terms of how it influences  portfolio returns, the UK economy is just not   92 00:08:44.880 --> 00:08:49.840 that important. Even the UK political situation  is not that important for a globally diversified   93 00:08:49.840 --> 00:08:57.280 investor. Yes, German elections, you rightly  say, they're at the end of the month and polling   94 00:08:57.280 --> 00:09:06.880 suggests you've got a highly fluid electoral  situation, as you say. Nonetheless a high degree   95 00:09:06.880 --> 00:09:16.080 of policy continuity is still likely for the most  part, looking at the currently viable coalition   96 00:09:16.080 --> 00:09:20.400 options; and remember this is a very fragmented  political landscape at the moment. But remember,   97 00:09:20.400 --> 00:09:28.880 even nuances in how Germany views its role in  Europe, for example, or indeed fiscal behaviour,   98 00:09:28.880 --> 00:09:34.080 those things could be very important and obviously  there's the end of Frau Merkel's incredible reign   99 00:09:35.280 --> 00:09:39.081 at the top of European politics and that's  naturally the focus of many at the moment.   100 00:09:39.280 --> 00:09:44.800 Otherwise really what we're doing at the moment  with all data points and everything coming in,   101 00:09:44.800 --> 00:09:50.960 you're just trying to steal glimpses of what  the post-crisis global economy looks like.   102 00:09:50.960 --> 00:09:58.080 And remember as we say regularly, much remains up  for grabs here in truth. And our view continues as   103 00:09:58.080 --> 00:10:02.720 you know to be obscured by the fact that, first  and foremost, we're still right in the middle of   104 00:10:02.720 --> 00:10:09.600 this pandemic, which is still far from being over.  And with all the distortions that that brings. In   105 00:10:09.600 --> 00:10:15.200 the near term, we'll be looking out for in the  US and the UK and Europe, what back to school   106 00:10:15.200 --> 00:10:20.480 means in terms of transmission and looking at  what's going on there. Labor Day as well in the   107 00:10:20.480 --> 00:10:25.200 US may have been a spreader event, we'll  see what that means for the statistics.   108 00:10:26.400 --> 00:10:30.240 And obviously if we approach traditional  flu season when medical facilities become   109 00:10:30.240 --> 00:10:34.480 a bit more congested, that's something  else to watch. So again we hope for a much   110 00:10:34.480 --> 00:10:39.840 less complicated winter than last time but  this pandemic is far from over and we still   111 00:10:40.800 --> 00:10:47.129 should, as investors and citizens of the world, worry about the sting of variants in the pandemic's tail. 112 00:10:47.129 --> 00:10:54.460 There's cause for optimism there does seem to be the economy learning how to, certain aspects of 113 00:10:54.460 --> 00:10:58.697 the economy seem to be learning how to coexist with the pandemic  and we all seem to be getting a bit more 114 00:10:58.697 --> 00:11:05.525 use to it. But just remember that there's a way to go  and there's some caution which is necessary. 115 00:11:05.525 --> 00:11:08.560 It does feel like every phase of the pandemic   116 00:11:08.560 --> 00:11:16.160 brings an adjustment to a new norm if you like  it, a well coined term but probably very apt at   117 00:11:16.160 --> 00:11:21.120 this time. Thanks, Will, always useful insights  from yourself and thank you to our viewers and   118 00:11:21.120 --> 00:11:25.440 listeners for joining us again today. If you  would like to hear more from us before the   119 00:11:25.440 --> 00:11:30.720 next Monthly Market Insights, please do seek out  our weekly podcast Word on the Street on all the   120 00:11:30.720 --> 00:11:37.040 usual platforms where we share many of our latest  views on various developments across investments   121 00:11:37.040 --> 00:11:40.919 and the world. Otherwise, Will and I look  forward to having you back with us next month.