Agenda item

David Vickers, Chief Investment Officer, Brunel addressed the Panel and gave them a presentation, a summary of the presentation is set out below.

·  PMI – Shows broad measures of economic growth

·  Renewed demand for commodities

·  Credit spreads are back near pre-Covid levels

·  More bankruptcies were experienced in 2019 than in 2020

·  A decade of potentially lower returns should be expected

·  Value stocks have risen since the Covid vaccination scheme began

Macro outlook

•  Economies well on the way to recovery driven by stimulus.

•  Global vaccine deployment is allowing markets to “look through lockdowns and outbreaks”

•  Pent up demand and high savings rate can spur on the economy.

•  High debt levels keep interest rates low

•  We are early in the economic cycle, but….

•  Equity valuations are not cheap, the boost from lower interest rates is over.

•  Credit spreads are at or near all-time lows and companies are more indebted than ever.

•  Inflation is picking up (base effect) but the future path of inflation is unclear

Steve Turner, Mercer asked if those outlook points were likely to make it easier or harder to invest in a climate orientated way.

David Vickers replied that while periods of underperformance for certain types strategies should be expected, in the long-term the inherent quality factor of Brunel portfolios should be additive to returns. He commented that in the current environment he had seen the equity market rally broaden out beyond traditional value stocks in the energy and banking sectors. He referred to the recent case of the Dutch Government ruling that Shell’s emissions targets should be accelerated as indicative of the market’s direction of travel.

Other key market trends

Themes for consideration include:

·  Unwinding of fiscal stimulus

·  Trade tensions

·  Political risk e.g. Taiwan

·  A change in the global tax system

·  A wave of defaults as stimulus and forbearance is withdrawn

·  Investing in China – Human Rights issues / Modern Slavery

·  Cyber risk

·  Climate change – an integral part of how we manage your assets, but a new trend for some!

·  A continued and prolonged change in equity leadership from growth to value

Councillor Paul Crossley asked if the speed at which capital was being invested in sustainable and ‘green’ investments could create artificially high valuations, posing a significant risk to ‘green’ investment strategies. 

David Vickers replied that there is dispersion among regions as to how far advanced they are in adopting ‘green’ and sustainable investment strategies, with the UK leading the way. Certain markets, including the US, are less well advanced indicating that the market remains robust. 

Shirley Marsh-Hughes asked if Brunel would consider all of their portfolios to be sustainable.

David Vickers replied that they all are except for the ones that are passive. He added that all the active portfolios are sustainable with a big ESG input into them.

Pauline Gordon asked if there were any key differences between the developed and emerging markets in terms of the macros highlighted.

David Vickers replied that emerging markets are cheaper on aggregate than developed ones and benefit from a weaker dollar. He added that one thing to be mindful of is that 50% of the emerging market is in China.

The Chair asked if an opinion could be given from a geo-political point of view with regard to Taiwan and the fact that they produce around 80% of the world’s microchips.

David Vickers replied that China were committed to being at the forefront of technology and chip manufacture and had been vocal around elevating their position on the world stage. He added that, critically to investment markets, supply chains had started to consolidate and that increasingly global onshoring will take place.

John Finch asked if he thought inflation would now really take off or are we just witnessing a bounce back from the lows and will it flatten.

David Vickers replied that the general thinking is that this is a bounce back and that it will fade. He added that the problem may occur if markets believe that the rate is going to continue to increase.

The Chair thanked him on behalf of the Panel for his attendance and presentation.