Positive vaccine news stimulates market rally
- Good month for risk assets following US election and positive news on vaccines
- Markets seem to look through persistent lockdowns thanks to strong technicals
- We added to Intermediate and Aggressive buckets to benefit from risk-on market
UK 10-year gilts sold off and surpassed the 40bps level early in the month, although subsequently rallied and ended the month broadly unchanged.
Risk assets had a strong month as a less chaotic US election than many expected and much more positive news on the vaccine played out early in the month. Seemingly large cash reserves across many investors sought a home during the month, driving many valuations higher.
Expectations for the short-term recovery remained muted as virus cases and movement restrictions remained in place or on the horizon in many parts of Europe and US, and the deadline for Brexit negotiations loomed large.
Portfolio positioning and performance
Defensive (45%): we added long-dated UK duration during the month as valuations improved. As well as the elevated duration position, we hold 12% exposure to inflation-linked bonds which should perform well in any economic recovery or “reflation” type momentum.
Intermediate (20%): we added to financial services names during the month as we continue to build higher exposure to European banks and insurance companies which have performed well during the crises of 2020.
Aggressive (36%): we added to Asian high yield during the month as the asset class continues to offer attractive US-dollar yields. We reduced our CDS exposure, which has acted as a valuable portfolio hedge during the year.
November was a very strong month for most markets as better news on the vaccine front, combined with strong technical demand, led markets higher.
We think these themes will continue into next year and therefore are starting to add credit risk to benefit from such moves.
As we look ahead to an economic recovery year, combined with low rates and accommodative central banks, 2021 could repeat some themes of the last six months.
No assurance can be given that the AXA Global Strategic Bond Fund will be successful. Investors can lose some or all of their capital invested. The AXA Global Strategic Bond Fund is subject to risks including counterparty risk, derivatives risk, geopolitical risk, interest rate risk, securitised assets or CDO assets risk, emerging market risk, liquidity risk, credit risk, risks linked to investments in sovereign debt, high yield bonds risk and contingent convertible bonds (“CoCos”) risk. Further explanation of the risks associated with an investment in this fund can be found in the prospectus.