Market & Portfolio Update - January 2021
January continued the eventfulness of 2020 with the US presidency and Senate elections being finalised, continued social unrest in the US, new strains of Covid-19 and the roll-out of vaccines around the world. The result for share markets was a slight easing in performance for the month. Arguably, a much-needed breather after strong returns in the second half of 2020.
Video game retailer GameStop stole headlines during January. GameStop, among several other companies, was subject to a ‘short squeeze’ where a large number of retail traders joined together to drive the share prices of these companies up, forcing several hedge funds to also buy the stock to close their short positions (a trading strategy where the investor borrows stock from another investor and sells it, betting the share price will fall).
The GameStop share price has since reversed much of its rise, causing a wild ride of gains and losses for those involved. For our Booster clients - these portfolios don’t have any exposure to GameStop – and Booster don’t use short selling either, so clients’ savings are not exposed to similar ‘short squeezes’.
Booster also took advantage of markets moving around as these events unfolded to tweak their funds’ Australian share investments more in favour of those businesses that are likely to benefit the most from the global economy reopening – from banks to travel and recruitment companies – adding to allocations that we bought during December.
Consilium’s approach reminded us that while Indexing can be an effective strategy, not all indexes are the same. An example is when Tesla was added to the S&P 500 recently, and the world’s largest index providers all scrambled to pay $4.6 Trillion in to buy shares of Tesla. This caused a huge surge in the price, however, Consilium portfolios were able to patiently wait until prices came down. This led to all 18 Consilium portfolios outperforming their respective indexes for the quarter.
One of the most persistent debates in the investment industry is whether investors are better to use passive or active managed funds. With strong advocates on both sides of this debate, it may seem like an obscure discussion. However, for investors, long term performance data tells a conspicuous story.