The renewed optimism at the beginning of the financial year was tempered by the announcement by the Prime Minister of a new nationwide lockdown that would once again have a negative impact on the economy which had been struggling to gather momentum in recent months.  The impact of previous COVID lockdowns on the economy was clearly evident in recent economic data where December retail sales were only marginally up by 0.3% month-on-month after declining by 4.1% in November and November GDP fell 2.6% month-on-month, primarily due to a fall in service output of 3.4% and industrial output of 0.1%.

The MSCI declined by 1.1% during the month largely due to a weaker US market where the S&P500 also declined by 1.1% on the back of a loss of momentum toward the end of the quarter as economists forecast weaker trading conditions in the first quarter of this year. The FOMC left policy unchanged at its January meeting, keeping the federal funds rate unchanged at near zero while continuing to purchase Treasury securities and mortgage-backed securities.  The other major markets performed poorly with the CAC down 2.9% and the DAX declining by 2.1%.

In the UK, markets reflected the sombre outlook for the economy with the FTSE 250 Index closing down by 1.3% over the month.  The small cap stocks again performed better than large cap stocks with the Small Cap Index increasing by 0.2% as compared to the FTSE 100 Index which declined by 0.8%.  The AIM All Share Index increased by 0.3% while the Fledgling Index was the best performer, increasing by 1.7% during the month.

In spite of a continuing sector rotation between growth and value, our growth-oriented portfolio increased by 0.6%.  After allowing for expenses, the NAV increased by 0.4% over the month, an excellent result given current circumstances and market conditions.  As we await company announcements on current trading, we have decided to remain fully invested, making no changes to our existing positions during January with cash comprising 3.5% of the portfolio at month end.