July 2020: shambles and zombies

Lockdown continued to dominate the news in the last month.

Poor old Australia seems not to have escaped Covid so lightly after all. Victoria, at the time of writing, is bearing the brunt of it. With a population of just over 6m, i.e. about the same as Scotland, they now have 11k cases, with 116 deaths to date. Their new daily cases figure of almost 400 amounts to, by my calculations, around 60 per million – which would put Victoria in the worst quartile in Europe.

New daily cases in Europe, Tue 28 July. Source: The Times

BoJo would like us to think of these increases as presaging the ‘second wave’. His government is now adjusting the settings almost daily, across several dimensions. One moment, in Oldham a lockdown is applied; the next moment, people across the North West can’t meet others indoors. One moment, masks are now (finally) compulsory in shops; the next moment masks are now required in all indoor public spaces. Meanwhile across the country nobody can now get married, whereas as of yesterday they could.

One government policy, one shop, one day – two ministers.

This leaves everybody having no idea any more.

BBC Radio 4 Today program, as transcribed by FT Alphaville

London’s lockdown afterlife

In London, at least in the suburbs, life has returned to something feeling fairly normal. In the way that zombies look fairly normal. High streets feel pretty busy; roads clog up (a bit) at rush hour. Restaurants are open. There is a pleasant outdoors-y vibe, as long as the weather permits.

However, those restaurants don’t have as many covers, and there isn’t even enough demand to fill what they have. That can’t last. The roads are clogging up partly because the pavements have been widened, there is Build Build Build going on to create more cycle lanes / broadband connections, and nobody is prepared to use public transport.

And once you venture into what our new world mates call the CBD, you enter a ghost town. The Central Business/tourist District still resembles apocalypse movies like 28 Days Later. I used public transport for the first time in four months recently, and practically had entire carriages to myself. This can’t last.

15 weeks later
28 days later

BoJo is increasingly frantic to get everybody back to their offices, led on by Ian Demented Smith and his ilk. However most Londoners are working quite effectively from home, on their generally good broadband; London is uniquely dependent on public transport, which carries obvious risk factors (including being the government’s recommended method for quarantining travellers to travel); and Londoners have plenty of BoJo’s ‘good old British common sense’, but very little respect for BoJo and his shambles of a government. This could last quite some time, and bodes very badly for central London’s property industry and economy, I fear.

Another month in the yo yo markets

In the USA, the virus seems to be winning the election campaign. The USD has dropped about 5% in the month. The S&P, being broadly unchanged in the month, has risen accordingly. However unfortunately the FTSE has dropped 4% all of its own accord – I’m not sure why exactly but the banking sector has dropped over 10%, which is the sort of sneeze that gives the FTSE a cold.

None of this has been good for the economy. Which has led to bonds continuing their slow march upwards – by an annualised 10% again in the month.

Market and currency movements in July 2020

Ignoring currency movements, markets rose by 1.3% in the month. However that drop in the USD (pulling AUD down in sympathy) means that the currency effect pulled my portfolio down 2.7%. Combining the two, ‘my’ markets fell by 1.4%. Against that backdrop, my portfolio’s return of +0.2% in the month was significant outperformance.

I remain about 3% underweight Equities, and 3% overweight Cash. I remain comfortable with this tilt, for the moment.

Deltas from target allocation, July 2020

Office of portfolio simplification

Over the month I have made steady progress on simplifying my portfolio. Regular readers will know I have been trying to reduce the complexity of my portfolio.

At the start of the year I set myself the Q1 target of pruning my portfolio to under 150 underlying holdings, with fewer than 100 in unwrapped accounts. I hit both these targets. However a third target – to have fewer than 10 holdings worth less than £20k, I missed by a mile – partly due to the market unkindly reducing the value of several holdings below the £20k threshold!

With the market having kindly restored the value of some holdings, and my efforts gently chipping away at the long tail end of my portfolio, I now have only 19 holdings worth less than £20k each.

Complexity: my key performance indicators since the start of the year

Of course if none of these holdings pay any dividends due to Covid-19, none of this simplification makes much difference. That’s for a future discussion.

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