The first quarter of 2021 was somewhat of a return to normal given the extraordinary events of 2020. Global stockmarkets enjoyed a good quarter, value stocks have had a good couple of quarters and even the big US tech winners of the pandemic year, added share price growth in the period. Fixed interest lost money in Q1 which is only right given the higher than normal returns of the last year.
The US remains the biggest global market at 57.8% by size, Japan is second at 6.5%, China is third at 4.9% and the UK comes in fourth at 3.8%. It remains surprising therefore that most UK investors generally remain over-exposed to UK stockmarkets. The result is that they have suffered from UK under performance in the last five years. At Altor we have always taken a global approach to investing and this has led to excellent returns for our clients.
It is worth reflecting on what has happened this quarter in the US, given its global reach and impact. The quarter started with the storming of the US Capitol building and five deaths. The replacement of Trump with Biden has returned some sense of stablity and normality (one Republican US senator recently complaining that Biden wasn’t in control because he wasn’t tweeting enough!). Whatever your politics, Biden has a good approval ratings across supporters of both parties and is an experienced political operator. March saw the passing of the $1.9trillion American Rescue Act and also saw the announcement of a planned 8-year $2.25trillion infrastructure plan (part of a $4trillion 10-year investment). This will be paid for largely with an increase in corporation tax and a move to tax the overseas earnings of US companies.
Both the investment and tax are important to UK investors. Firstly the aim of the investment is to grow the US economy and this will provide continuing support to all asset prices including stocks. A global investor needs to always have a look at what is going on across the pond. Secondly our own ability to service our national debt depends on our ability to raise our own taxes. Sadly in this case Rishi Sunak’s proposed tax on US tech firms has been blocked by Biden who threatened a retaliatory 25% levy on UK exports. Interestingly the EU didn’t have the same issue and we Brits might need to get used to our new place in the world, as a smaller player with less clout.
As we always say with these commentaries, you shouldn’t pay them any heed as no one knows the future. This is the best article that we have read in a while about uncertainty and the future.