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Quotidian Investments Monthly Commentary – September 2020

October 2, 2020

Historically the months of August and September have usually generated the poorest returns of the entire year in equity markets and 2020 has mimicked this well-established trend. There is, therefore, very little of any enlightenment to present to you and so I will heed the sage advice given to me by my leader in my very early years of investment management:

“If you have nothing of consequence to say then say nothing and let people think you’re daft rather than witlessly and pointlessly open your mouth and remove all doubt”.

On 30th September 2020 the FTSE100 index closed the month at 5,866.10 (a fall of -1.63% in the month of September) and it now stands at down -22.23% for the 2020 calendar year to date.

By comparison the Quotidian Fund’s valuation at the 30th September shows an uplift of +0.03% for the month and the Fund is now up +32.45% for the 2020 year thus far. We are therefore 54.67% ahead of the FTSE100 at this stage of the 2020 calendar year and, of course, well ahead of inflation and the yields available on gilts or deposits.

In the covering letter to our August report I mentioned that the Japanese investment organisation Softbank (which has a well-deserved reputation for gambling rather than investment) had been active in its use of derivatives (options and/or futures) to the tune of billions of US dollars as a means of driving the prices of the main tech companies ever higher. This is a technique known as ‘spoofing’ which has the effect of confusing normal market mechanisms and Softbank seems to regard this as clever business…..we see it as market manipulation and there is a danger now that they have been driven upwards too far, too fast.

On that theme, and simply to illustrate the lack of real and sustainable progress in equities over the past two months, it is worth noting that the Nasdaq index (which had been the only positive driving force for the global market throughout this year) has fallen by -8.08% since 2nd September, having been on a roller-coaster ride throughout the month.

Thas has cast the pale shadow of doubt over global equity markets too. We continue to be happy to remain shy of equities for the moment until we see a genuine opportunity to obtain profits from any re-exposure to market risk. Better safe than sorry until a greater degree of clarity emerges.

Towards the end of September the Federal Reserve stated that they anticipated interest rates in the US would remain at their current very low level until 2023. At the same time, the Bank of England suggested that its interest rate in the UK could well fall from today’s level of 0.01% into negative territory. Whilst this is unhappy news for risk-averse savers who rely largely for their income on gilt or money-market yields generated by their capital, it will have a positive effect on ‘risk-asset’ valuations and will likely cause more capital to be directed into equities (thus driving equity valuations upwards).

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