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Quotidian Investments Monthly Commentary – August 2020

September 3, 2020

On 31st August 2020 the FTSE100 index closed the month at 5963.60 a rise of +1.12% in the month of August, and it now stands at down – 20.93% for the 2020 calendar year to date.

By comparison the Quotidian Fund’s valuation at the 31st August shows an uplift of +0.24% for the month of August itself and the Fund is now up +32.41% for the 2020 year thus far. We are therefore 53.34% ahead of the FTSE100 at this point in the 2020 calendar year and, of course, well ahead of inflation and the yield on gilts or deposits.

The UK’s Gross Domestic Product (GDP) fell by 20.4% in the second quarter of 2020, its second consecutive quarterly decline in 2020 and the biggest fall in quarterly GDP on record.

That represents the accepted definition of a recession and hardly comes as a surprise given the economic impact of Covid-19 and the measures taken by the government in its attempts to control the spread of that virus.

Overall, productivity saw its largest ever fall in the second quarter and there were widespread contractions across all main sectors of the UK economy. For example, the services sector fell by 19.9% between April and June, output in the construction sector fell by 35% in the same period and, to complete an unwelcome hat-trick for the 2nd quarter, Industrial Production fell by 16.99% in the three months to end of June 2020. Another statement of the blindingly obvious was that the Hospitality sector was worst hit, with productivity in that industry falling by three-quarters in recent months.

Perversely, the immediate reaction in equity markets on the day these figures were released was an uplift of over 2% in the FTSE100. Perhaps market-makers were expecting even worse numbers and so a sigh of relief was the order of the day. Reprieve, however, was short-lived and within three days that increase was wiped out and the market had returned to its bearish tone.

Many UK financial commentators are suggesting that the local economy will struggle to move forward until late 2021 to mid-2022. We can only hope that these analysts are too pessimistic and error-strewn (as, indeed, they usually are). At the moment we see little investment attraction in Europe or the London markets in anything other than the UK smaller companies sector and, even then, only very selectively.

Ever keen to add a note of joy to the world of investment, towards the end of August the government announced that UK debt now stands at £2 trillion (another record) and that debt now exceeds 100% of GDP. Strangely, bells and whistles were notable by their absence in the delivery, the content and the ambience of this news.

In search of positive news with which to end this report, the UK economy began to bounce back in June with shops reopening, factories beginning to ramp up production and housebuilding continuing to recover. UK GDP grew by 8.7% in the month of June although, despite this, GDP in June still remained one-sixth below its level in February, before the virus struck.

The monthly figure for May had also shown GDP growth of 2.4% and so, month by month, there is evidence of a gradual bounce-back. However, the level of UK output has not yet fully recovered from the record falls seen across March and April 2020, and has reduced by 17.2% compared with February 2020 (before the full impact of the coronavirus pandemic). The pursuit of positive investment returns continues but we are content to remain in cash for a while longer rather than make a premature re-entry to equity markets and expose ourselves to what would more likely be a period of return-free risk.

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