Acumen Portfolio Performance Q3 2021
Commentary on Portfolio Performance – Quarter 3 2021
The third quarter of the year again saw all portfolios finish in positive territory. September and October have historically been volatile months for the stock market and over the last three weeks of September this indeed turned out to be the case. However effective diversification within the Acumen portfolios saw a smoother ride for investors.
Developed market equities were broadly flat over the quarter after a decline in September cut into much of the quarter’s accumulated gains. Nevertheless, the market has withstood concerns that we may have passed peak growth in this cycle, and it has overlooked supply disruptions and inflationary fears. Earnings growth expectations remain solid and recessionary risk appears to be discounted.
The Federal Reserve’s (Fed) rate-setting meeting indicated that its bond buying programme will start to taper off over the coming months and most likely be fully phased out by mid 2022. The European Central Bank (ECB) also announced a reduction in its bond purchases although they stressed this will not be fully reduced to zero in the short term – a marked difference from the US position that will no doubt play out in the markets in the months ahead.
Markets in Quarter 3 2021
A broad-based decline in September took the shine off third quarter performance although it remained positive for the period overall. The energy sector continues to lead with gains of + 35% year to date. Banks also rose on foot of the prospects for higher interest rates.
Some recent economic data has been somewhat softer than expected due in part to the Delta variant and to the ongoing dislocations in supply chains and the labour market. Yet the outlook for US and European economic growth in the second half of the year is strong, due to ongoing fiscal support, accommodative monetary policy, widespread vaccinations and the continued reopening of the economy. Markets are also hopeful that Mrs Merkel’s successor will continue to steer the course of Europe’s largest economy with the steady hand that has guided policy heretofore.
In Emerging markets, Chinese Equities have reacted negatively to increased regulation of the education and IT sectors and also to the potential default of large Chinese property developer, Evergrande.
Gains on the bond market in July due to fears that Covid cases were rising again plus soothing messages regarding inflation from the Fed and the ECB proved to be relatively short lived. By September the Fed had hinted at an early reduction in its bond purchasing programme, possibly as early as November. The ECB advised that asset purchases will reduce in the coming months. Both central bank messages were enough to eradicate earlier gains made in the quarter.
Transactional activity in the Irish commercial property market which had been hampered by lockdown restrictions and the travel ban, is now seeing real signs of improvement. Overseas investors accounted for almost 60% of deals. About 80% of transactions were completed within Dublin and 20% outside. Market spend during the third quarter of the is well above the 10 year average.
Natural gas prices are rising very quickly. Oil raced towards the $80 a barrel mark for the first time in 3 years. Industrial metals and precious metals tracked sideways over the quarter.