Hello. This is Jeremy Richardson from the RBC Global Equity Team here with another update. And it’s been a really interesting time in equity markets.

Jeremy Richardson: They’ve rallied by over 12% in November. Astonishing performance, driven really by this change in market narrative that we’ve witnessed caused by the very welcome news that the scientists have discovered no less than three vaccines which are effective at treating COVID-19.

This has prompted a rotation, and those of you who listened to my last update will perhaps remember how we were discussing this bifurcation that we’re seeing in the market. This K-shaped recovery where on the one hand you had groups of stocks that were perceived as being sort of COVID immune and investors were prepared to pay almost like an insurance premium in order to own those stocks and protect their portfolios from the disruption caused by the pandemic and were, on the other hand, avoiding business models that were more susceptible to that disruption. And what we’ve seen as a result of this news is essentially that has reversed. This K-shaped recovery has flipped over and so that’s really worked to the benefit of those overlooked stocks and this is so we might think about business models like hospitality, leisure, travel, entertainment, and so on. So those have been a real pocket of relative strength this month and have enjoyed some strong performance.

Another group that we should probably also highlight which have also been benefitting have been those business models that benefit from rising interest rates. So those of you who have been keeping an eye on bond markets might have noticed that the U.S. 10-year Treasury yield has gone from about three-quarters of a percent to nearly one percent. And that steepening of the yield curve is usually quite good news for financial companies. In particular, banks whose net is interest margins and, therefore, profitability benefit from that rising interest rate scenario.

There’s also a possibility that these business models may benefit as well from better economic times ahead in 2021. If the vaccines are rolled out fast enough and the disruption from the pandemic is tempered, we might see actually some of those loan loss provisions that a lot of the banks were squirrelling away in the early part of 2020 no longer required, and that also could help profitability.

However, as we look now towards the end of the calendar year and I’m sure very few of us will be looking back on 2020 at all fondly, although it’s surprising just how well equity markets have done notwithstanding that disruption, there remains a lot of uncertainty as we try and gaze now into 2021. Not least from the fact that obviously, the pandemic is still very much with us and the news flow is not as encouraging as we would like in all geographies around the world. The vaccine rollout is something to be eagerly anticipated but, of course, we don’t know how quickly that is going to occur and, of course, the most vulnerable groups who are most deserving first are probably some of the least economically active. And so the effect on the economy may be sort of slow to build.

There’s also, and this is probably an overlooked risk, the issue of how we exit from the special measures that we’re seeing at the moment in terms of monetary policy and fiscal spending, and some of these policies will have some longer-term positive halo effects. We can think about things like environmental infrastructure plans, Green New Deal Build Back Better and so on which should have a longer-term environmental legacy. However, the way that this gets communicated, the shift from extremely low-interest rates to something back towards which we might characterize as being more normal has the potential to deliver some unwelcome volatility for investors as we look forward into 2021.

How, as stock pickers we try and deal with some of that, those uncertainties, really comes back down to portfolio construction and the making sure that we feel comfortable with the strength of the fundamentals of the companies that we continue to be invested in, not forgetting the fact that in the long run, it is the company fundamentals that really drive share price performance ultimately.

So hopefully that’s been of interest and I look forward to catching up with you again soon.