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Generation Monthly - April 2020

UK: Suitable for retail clients

Rest of Europe and Singapore: For sophisticated investors only

Date: 18 May 2020

In this month's edition:


Market review

Covid-19 – or coronavirus – has taken its toll on markets around the world during the past month, stoking fears of a global recession.

Towards the end of February, the Organisation for Economic Co-Operation and Development (OECD) urged governments to take action to cushion the impact of coronavirus on global economies, warning that global growth could halve from levels projected before the outbreak, to just 1.5%.

The FTSE 100 index was among the hardest hit, posting a loss of 9.7% over the month, while the FTSE All Share index lost 9.5%.

By the end of February, cases of coronavirus in the UK had reached into the thirties, although the number of fatalities was still small when compared with other countries.

The rise in cases saw the UK Prime Minister Boris Johnson chair his first emergency Cabinet Office Briefing Rooms (COBRA) meeting where he insisted the UK was well prepared for a mass epidemic and said a “battle plan” would be unveiled.

Within fixed income, investors sought safety in the higher quality parts of the sector, pushing yields on UK government bonds lower within the first few weeks of February. Investors also fled to gold, which reached a year to date high of $1,687 during the month.

Japan also saw its market fall during the month, with the MSCI Japan index losing 6.3% in February as the Diamond Princess cruise ship docked for quarantine measures and virus volatility took hold.

With no real end in sight, and the virus still spreading, it has been suggested that the 2020 Olympic Games, due to kick off in Tokyo in July, is at risk of being postponed, a move that could have devastating consequences for the Japanese economy.

However, the majority of markets were unable to escape February unscathed – with the MSCI USA index down 5.4%, the MSCI Europe ex UK index down 5.5%, the MSCI Asia Pacific ex Japan flat at 0.2%, and the MSCI Emerging Markets index down 2.3%.

The yield on the 30-year US Treasury fell  to just below 2% - a historic low - while   the yield on the 10-year Treasury fell to its lowest since 2016.

Surprisingly, given where the virus originated, China ended the month in a positive position – with the MSCI China index up 4.2%. But while the stock market volatility in the country may have settled for the time being, the impact on its economy is yet to really show.

A snapshot of industrial activity in China showed a plunge in factory output during the period as a result of quarantine efforts disrupting supply chains. This is expected to have significant consequences for companies around the world.


Performance review

February, as we now know, was the start of a very challenging period in markets, with equities falling lower, triggered by the sharp increase in Covid-19 cases in Italy and the ensuing measures to control the outbreak.

As a result, the Generation portfolios were lower over the month with higher risk portfolios in the range, which have a higher equity content, faring worse in absolute terms.

The fixed income holdings had a small negative effect on performance. In February, government bond yields fell dramatically, with US 10-year Treasury yields falling from 1.5% to 1% through the month.

In line with equity markets however, credit spreads – the difference in yield between bonds of the same maturity but differing credit quality - started to widen, particularly within the slightly higher risk high-yield section of the market. As the portfolios have a small overweight position to credit, this movement detracted from overall returns.

During the month, we focused activity around de-risking the portfolios. In particular, we reduced the equity allocation down to around 30% compared to almost 40% at the start of the month, and as markets started to deteriorate, the equity risk in the portfolios was actively reduced.

Meanwhile, there were a couple of manager changes during the month. This included the addition of Finsbury Growth & Income Trust, run by Lindsell Train, and a redemption from the Brevan Howard Absolute Return Government Bond Fund, on the back of lacklustre performance.



It may seem a little bleak right now, with markets falling across the board, but this in itself presents investment opportunities. Investors need to remember that the economic data was improving before the coronavirus outbreak really took hold, so not all hope is lost, albeit it changes the dynamic a little bit. In addition, in such volatile periods there are also potential opportunities to be found by using investment instruments such as derivatives, which can defensively add upside potential to a portfolio.

(All performance figures in sterling terms and rounded to one decimal point, unless otherwise stated.)

Sacha Chorley

Portfolio Manager

Ian Jensen-Humphreys

Portfolio manager


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