What’s been moving markets?

Last week we saw some significant downward moves in some of our funds, especially Clean Energy, Digital Learning & EdTech and Cybersecurity & Data Privacy. But what’s been causing these fluctuations?

In short, three recent announcements from over the Atlantic are behind the negative performance. These are:

  1. Biden’s American Families Plan
  2. Federal Reserve (US Central Bank) announcements
  3. US non-farm payrolls

So what exactly were these announcements and why do they affect our funds?

1) Biden’s American Families Plan

In late April, US President Joe Biden announced plans to spend significant sums of US government money supporting American families with a number of key policy changes, including:

  1. $200 billion for free universal preschool for all three- and four-year-olds. This involves a national partnership with states to offer free, high-quality, accessible and inclusive preschooling, benefiting five million children and saving the average family $13,000
  2. $109 billion for two years of free community college so that every student has the ability to obtain a degree or certificate
  3. Improved child care and parental leave, including:
    • Fully covered child care costs for less affluent, working families
    • A cap on child care costs at 7% of income for all children under age of 5
    • 12 weeks paid parental leave (right now, the US is way behind other countries on parental leave with 1 in 4 mothers returning to work 2 weeks after giving birth, boo)

These policies are clearly great from an impact perspective, but have had a negative effect on some of our investments – most notably the Digital Learning and EdTech fund. This is because government involvement in the public provision of education creates uncertainty around how and where the money will be spent. It may also lead to a decline in private education as families switch to public education. Private education is typically a higher margin business for education providers than centrally negotiated state or government contracts, so working with the public sector creates uncertainty around expected profits.

President Biden also announced proposed tax increases to cover the costs of his American Families Plan and other US Government spending packages (such as COVID-19 support). Both higher rates of taxes on corporate profits and higher income tax for more affluent families were announced, which had a knock on effect on some of our other funds.

2) Federal Reserve announcements

The Federal Reserve (the US central bank to us non-Yanks) reviews and announces their interest rate policy based on the performance of the US economy eight times a year. They made one such announcement last week.

The core message? They’re leaving things unchanged for now but hinted that they would be open to making changes over the summer to reduce the likelihood of inflation (the increase in prices that we pay) running too high.

After years of exceptionally low inflation, we think any changes that happen will be very gradual – but the prospect of any change at all was especially detrimental to the shares of clean energy companies which are very sensitive to interest rate rises due to the way energy projects are funded by borrowing.

3) Non-farm payrolls

On the first Friday of each month, the US government announces what they call non-farm payrolls. This is the number of new jobs created and filled in the last month, excluding jobs in the agricultural sector. (FYI as farming is naturally seasonal, jobs in agriculture can heavily distort the numbers – the US Gov leaves them out so that they don’t wind up distorting the view we get of the US economy).

Last week, they announced the creation of around ~266,000 jobs in April. This sounds like a lot but investors had been expecting nearer to a million new jobs (978,000 to be precise!) so there’s been a lot of disappointment around the announcement.

As a result, share prices in many sectors of the US economy fell, including in the tech sector which is dominated by big consumer names such as Apple and Amazon. Our cybersecurity investments got caught up in this as many investors use sector-based funds to invest and had to sell baskets of general technology stocks, rather than just the consumer-focused ones.

The news around non-farm payrolls also affected the US Dollar which became cheaper versus other global currencies – including the humble pound. As global investors, we hold lots of investments that are priced in dollars, so converting these back into pounds negatively impacts performance.

What’s the tickr take on this?

One of our key principles is that investing is for the long-term, not a quick fix – it’s a case of thinking about how investments could progress over five years, not five weeks as short term fluctuations in the market are a natural part of investing. We’re also confident that the ethos behind investing in the funds we mentioned remains firm, as the demand for education, cybersecurity and the shift towards green energy continue.

This article was first published on 11 May 2021. This article is provided for information only and does not constitute financial advice. If you require financial advice please approach an independent financial advisor authorised by the FCA. tickr does not provide financial advice and is an execution only platform.

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