Verbatim Income Fund - Q1 Commentary

22 April 2021

By Mark van Moorsel, Co-Fund Manager WS Verbatim Portfolio 5 Income Fund 


Market Review

As we look back the first quarter of 2021, it is clear that a strong, vaccine-driven recovery is now unfolding around the world. It is US-led but global in scale, synchronised across regions and fuelled by generous monetary and fiscal policies. Thanks to vaccination progress the US and UK have both targeted full reopening on 4 July and 21 June respectively. However, where vaccine progress has been weaker, we are seeing further lockdowns imposed, Europe in particular. The improving outlook continues to be well received by equity markets, with the S&P reaching its highest level in history and value stocks continuing to outperform growth. And with macroeconomic data all pointing towards a synchronised cyclical recovery, underpinned by record fiscal packages and new commitments to climate and infrastructure spending, inflation expectations have surfaced seeing bond yields rise and negative returns in fixed income. Gold also continued to retrace. 


Fund Review 

During the quarter, cyclical companies performed best as the market rewarded companies which benefit from a ‘back-to-work’ as opposed to a ‘stay-at-home’ environment. Bridgestone (the leading Japanese Tyre manufacturer) was one such example, more cars on the road should naturally lead to higher demand. Bank of Nova Scotia also benefited as an uptick in inflation and the potential for higher rates provided a supportive environment for banks. Siemens, the diversified industrials company, performed well and the market has also responded generally positively to the new management team’s attempts to create a leaner business. Raytheon Technologies, the Defence business which emerged out of United Technologies, also benefited as Governments continued to invest in their Military. Cisco also performed strongly, a return to the office potentially means more enterprise expenditure on IT equipment to adapt to the more flexible environment following COVID.


Credicorp was the worst performer over the quarter, concerns over the Political situation in its main market (Peru) dominated investors thoughts. We still see a strong thematic investment case in a deeply underpenetrated banking market. In general, more Defensive ‘Quality Compounders’ and consumer staples businesses suffered as the market turned to more cyclical names with Colgate-Palmolive, Givaudan and Unilever all impacted. Merck also suffered as initial enthusiasm for Pharmaceuticals businesses throughout 2020 waned as the market came to appreciate that these businesses were not immune from the impact of COVID despite being an integral part of the fight against the virus. 



Market Outlook

To revive economies, policy makers continue to draw on their playbook from the 2008 Financial Crisis but with greater urgency and scale. Central banks globally have shifted towards a more dovish monetary policy, potentially seeing lower rates for longer and a willingness to sustain higher inflation. Trillions in fiscal stimulus has also been pledged, targeting societal inequality with ‘levelling up’ policies, Biden’s proposed infrastructure package and the UK’s ‘Green Budget’. 

Over the long-term, we expect trends that the pandemic accelerated, such as e-commerce and working from home, are here to stay. Further opportunities will be driven by the shift to a more digital world, new automation, climate change mitigation and adaptation, demographic trends and by shifts in consumption patterns in both the emerging and the developed markets.


Beyond the pandemic, there are other challenges we are monitoring closely. Rising inequality is our greatest worry and the consequences of the virus disproportionately affecting lower skilled, lower income populations. While accelerating global demand is heaping pressure on already fragile supply chains and we expect these higher costs to be passed on to customers.  Given the slack in the labour market, these price effects should be transitory, but in the medium term the question of whether the post-COVID economy merits structurally higher inflation will remain hotly debated.

Despite the challenges ahead, we remain positive on the prospects for a cyclical economic recovery in 2021 supported by international vaccination efforts. Ultimately, this combined with continued support from central banks should lead to an attractive environment for risk assets.



The value of investments and any income from them can go down as well as up and is not guaranteed. Your clients could get back less than they originally invested. Past performance is not a guide to future performance. The portfolios' investments are subject to normal fluctuations and other risks inherent when investing in securities. Verbatim Asset Management has taken due care and attention in preparing this document, which is solely for the use of professional advisers. Verbatim cannot be held responsible for any inaccuracies arising out of information detailed within and will not accept liability for any loss arising out of or in connection with its use. The contents of this article should not be construed as advice and is for information only. Individual stock selection should only be performed by suitably qualified advisers.