Since launch, we would like to highlight the following on the performance of the Luna Passive MPS;
All portfolios have delivered positive returns.
The portfolios have behaved “as expected” in that the more risk that has been taken the greater the return which has been achieved.
5 of the 7 Passive MPS have outperformed their respective IA sector.
Source: MorningStar Direct and Luna Investment Management
So why has performance been so strong?
Markets were at depressed levels a year ago, when the MPS was launched, because of the impact the pandemic had on global markets. The recovery from these lows has been a significant factor in all portfolios delivering positive returns over their first year.
However, the drivers to performance have changed dramatically over the last year. In the first six months, the key drivers were the areas that enabled us to adapt to a lockdown environment – Technology. This was also driving regional performance with the US tech-heavy market being a strong performer in 2020.
As the vaccine news was released, the stock market rotated. Investors realised that the winners of 2020 were not likely to be the winners of 2021 as economies gradually reopened. On top of this, the areas that have bounced back hardest over the last 6 months started at extremely cheap valuations.
We picked up on this price action very early and took profits on our US and Technology positions to reinvest into more cyclical areas that we felt would perform well as economies reopen. This has been one of the key drivers to returns since the launch of the MPS and when looking at the six-month performance all Passive MPS are comfortably ahead of their respective IA sectors.
The best-performing holdings over the last 6 months are;
TB Amati UK Smaller Companies +27.5%. Despite this fund being an active unit trust – we added this in the Passive MPS because we believe that a high-quality UK smaller company active manager justifies the extra fees paid by delivering strong performance. This has clearly been the case with the fund being the top performer during the last 6 months. As the name suggests this fund invests in smaller companies in the UK that are more exposed to the UK economy – which has bounced strongly as the economy has gradually reopened. This fund is included in Passive MPS 2, 3, 4 and 5.
iShares UK Dividend ETF +23.6%. This fund invests in dividend-paying companies in the UK which were badly impacted early in the pandemic because of dividend cuts. The fund has a bias to Financials and Consumer Staples.What is also interesting with the above is that both funds are UK orientated. We increased our exposure to the UK at the end of 2020 because valuations were cheaper, and we could see a catalyst for change.The UK equity market and sterling have both been unloved since the Brexit referendum in 2016 and it has therefore been an extremely easy decision to avoid investing in the UK given the level of uncertainty. However, with a Brexit agreement in place investors will gradually have more confidence in investing in the UK. The UK valuation “discount” will not disappear overnight.It is worth remembering that it took five years for this to be in place and it will likely take a similar time frame for it to be unwound.
We continue to be optimistic about the economic and investment outlook. We view the global economy like a “coiled spring”, with the expectation that the easing of restrictions could lead it to burst into life. As and when this happens, it will likely lead to a boom in economic growth. We have longed to see friends and family, we have longed to travel, the roadmap has been set out and is currently on track.
We also remain confident with the current positioning of the MPS that will be the key driver to returns going forward. We are overweight equities, with a bias to the UK, and underweight fixed income – which we feel is appropriate given our positive view on the global economy.
The content in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.