Investment Outlook

Investment Outlook fourth quarter 2020



Progress happens too slowly to notice, setbacks happen too fast to ignore.”
Morgan Housel, former columnist at The Wall Street Journal, September 2020

World economy

Equity markets continued their recovery in the third quarter of this year. Because the worldwide ‘lockdowns’ drew large parts of the economy to a halt in the second quarter, the corporate earnings published in the third quarter were key to that recovery. The impact appeared less severe than feared. US S&P500 companies earnings were down 7% on average, their European counterparts were down 25%. The difference is primarily caused by the flexibility US companies have to furlough their employees. As a result, unemployment rose rapidly in the US, an issue that was mitigated by issuing government checks directly to those affected. The future of US unemployment and its effects on the economy will depend on what the next stimulus package will hold.

Meanwhile, it has become clear that the Covid-19 pandemic will have a lasting effect on the world economy. There are several badly hit sectors such as hospitality, airlines or commercial real estate, but also  sectors that profit directly from the pandemic and its effects on societies.  The e-commerce, meal delivery and IT sectors are prominent examples. But interesting changes are also occurring in less talked about sectors. Apartment prices in major US cities are falling, prices of suburban properties are rising. Residential construction activity is at a such a high level that a shortage in materials is emerging. And after an initial decline, used car sales are up significantly, as are the prices. As people seek to avoid public transport, demand for used cars has soared. Companies like Copart reap the benefits.

In all, the current market is showing signs of overheating. Last month saw several corporate take overs with a deal size in excess of 20 billion US dollar. Nvidia and ARM are striking examples. Pending IPOs such as Palantir and Ant Financial are eagerly awaited by investors. It is impossible to predict when the current highly strung markets could cool down, partly due to the unprecedented low interest rate environment. We continue to seek prudent investments in solid companies that trade at acceptable prices. We discussed the valuation discrepancies between growth and value stocks in our previous investment outlooks. In the current market environment, we remain disciplined by reducing our allocation to popular but expensive equities and reinvesting the proceeds in less high profile but high quality stocks. Our investment case for American Express, included on the next page of this outlook, is an interesting example in point.

From a geopolitical perspective, the US presidential elections are the main event of the next quarter. Joe Biden looks to have taken the lead in several polls. With elections for one third of the US senate on the same day, the Republican party could lose its senate majority: 23 of the 33 seats up for election are held by Republicans and the Democrats could take control of the senate with as few as 13 or 14 wins. The outcome of the elections can have major effects on world trade, climate policy and social order. The market impact is difficult to predict. If the first debate between the two presidential candidates was a preview, it could be a volatile period. No major elections are scheduled for the short term in Europe, but the EU has pledged 750 billion euro of aid to several member states. These funds will be raised on a supra national level, taking the Eurozone, initially designed as a monetary union, a first step towards a fiscal union.

In currency markets the euro climbed against the US dollar. Many European and Japanese investors held US Treasuries because of the higher interest paid on US debt compared to that of other major countries. Now that US interest rates have fallen to a mere 0.7%, that interest benefit is a lot less attractive. Combined with a declining confidence in the US dollar caused by the rising US debt and the sharp increase indollar supply, the value of the US currency decreased. This means extra headwind for European companies that depend on exports. Nevertheless, with the US dollar’s untouchable status of global reserve currency, investors remain overweight in the ‘greenback’.

Fixed income and cash We continue our short duration policy for the fixed income part of the portfolios. Longer maturities offer insufficient compensation for the extra risk.

Equities – While statistics show no consumer price inflation at the moment, the increase in supply of US dollars stands at 23%. That’s almost twice as high as the last peak in the 1970’s. Such an increase almost always creates higher pricing. In that case, companies that are able to autonomously determine their pricing and that are valued at an acceptable level are the most secure investments,

Listed Private Equity Managers We maintain a relatively high allocation to these companies, as they seem to profit from the inflow of capital to non-listed assets and markets. Based on their perspective for growth, we added  KKR & Co Inc to the portfolios during the quarter.

Real estate – Shopping malls continue to suffer from the acceleration of e-commerce. Offices buildings could face a similar problem. Working from home can reduce the demand for office space in the long term. Residential properties remain attractive, but we maintain our underweight position in the real estate sector.

Commodities – Our overweight position in gold is maintained.



During the third quarter, we sold a second part of our position in Sartorius Stedim, a company that makes equipment for the production of biological medication. The proceeds were invested in Stryker. Stryker is a medical tech company focused on the production of surgical and medical equipment –from wheel chairs and beds to OR equipment- and orthopedic implants such as artificial hips and knees. Company revenues are more or less split in half between these two segments.


Because Japan is the third largest economy of the world and home to many leading and innovative multinationals, we are keen to invest in Japanese equities. At the same time, it can be difficult to find Japanese companies that meet our selection criteria. With our recent purchase of Nintendo, known for games such as Mario, Pokémon and Zelda, we believe we have added a Japanese company to our portfolio that meets our quality requirements. 


For every share that we buy and sell for our customers, a commission is paid to the broker, which in most cases is the custodian bank. For them, these commissions are an important source of income. Because this is an industry that we deal with every day, we used our first-hand knowledge when we selected a broker as a potential investment last year. We took a position in a company named Interactive Brokers.