Weekly Investment Update (10/23/2020)
Overall Mobility Metrics Decouple From COVID-19 Case Count, Though Mobility Preferences Remain Altered
During the first wave of COVID-19 cases, we saw mobility metrics plummet broadly alongside rising case counts. Similarly, as cases decreased in the spring, mobility recovered. Interestingly, even though case counts have risen recently, we have not seen a noticeable decrease in overall mobility metrics. For example, after plummeting in March and partly recovering through the spring and early summer, Google’s overall activity index has remained fairly flat since September even while new COVID cases in the U.S. have accelerated in recent weeks.
Still, the early shift seen in mobility preferences lingers as consumers continue to travel via car and shy away from public transit. As a result, some forms of mobility remain more impacted than general mobility metrics. For example, subway ridership in New York City is still down roughly 70% relative to last year even though public schools reopened in early October. Driving, on the other hand, has more than fully recouped its initial decline, according to Apple mobility data.
Overall, steady and elevated mobility metrics, even in light of rising cases, support the notion that society is learning to adapt to a “new normal” of life with COVID-19. Still, avoidance of public transportation is evidence that consumer behavior remains changed, and high-risk activities will likely remain depressed until COVID-19 is a far reduced threat.
Asian Export Strength Implies a Positive Path for Global Equity Earnings
The strength of Asian exports — Korean exports up 7.7% in September, Taiwan exports up 9.4% in September, and Chinese exports up 9.9% in September — remains impressive as the global economy recovers. While the U.S. election remains an obstacle to determining the concrete impact of foreign policy on Asian equity, currency, and fixed income markets, the trajectory of Asian exports correlates very well with the trajectory of global equity earnings. As such, we would expect the trajectory of global earnings to continue to improve in aggregate.
Of note, China’s domestic flight volumes have nearly returned to the previous year’s level, retail sales have returned to positive growth for the first time in 2020, and industrial production remains robust. Bessemer portfolios possess exposure to China via powerful e-commerce and cloud names as well as leaders in online education and biopharmaceutical development, among others.
U.S. Housing Market Strength to Buoy Third-Quarter GDP
The extremely robust v-shaped recovery in home sales continues against the backdrop of extremely low mortgage rates and a potential shift in preferences from urban to suburban living environments. Total existing home sales rose 9.4% to 6.54 million in September, putting sales at the highest level since May 2006. With median single‐family home prices up 15.2% over the last year, only 2.7 months of sales of total inventory on the market, and a record‐low 21 days on the market, sellers clearly have the upper hand. Bessemer portfolios retain exposure to businesses that provide inputs to the housing industry, especially those with scale and reach across the entirety of the U.S. market.
Flow Trends Suggest Investors Are Deploying Cash Across Asset Classes; Credit Remains Attractive
We had noted the impressive flows into money market mutual funds as the COVID-19 crisis unfolded and investors sought safe assets. As the economic recovery has progressed from its trough seen in April, animal spirits have returned across equity, credit, and fixed income markets. As a result, we have witnessed nearly three months of outflows from money market holdings and into other asset classes. Following the outcome of the U.S. election, we would expect this trend to persist as the risk event passes and the economic recovery progresses.
Given the backstops in place from the Federal Reserve coupled with the beginning of a new corporate credit cycle, we believe the Bessemer Credit Income fund provides an attractive combination of yield and protection within a broader portfolio. Specifically, the portfolio’s construction is intended to achieve a balance between higher-yielding, shorter-duration holdings and lower-yielding, longer-duration holdings in order to provide a unique risk-reward profile in a global backdrop with nearly $17 trillion in negatively yielding securities. Long-held relationships with external managers BlackRock and Muzinich coupled with Bessemer’s fundamental credit research and quantitative teams provide a strong foundation for consistent returns and income.
— Bessemer Investment Team
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