It seems an age ago that we entered 2021, what with the pandemic returning at full throttle. The UK, along with many other countries, was put into another full lockdown with Covid 19 cases and deaths rising exponentially.  In early January, the UK was reporting daily cases in excess of 60k, and deaths of more than 1k. The world seems to now be in a much better place, with several vaccinations being approved and successfully rolled out in many countries. By the 12th of May 2021, the UK alone has given over 35 million 1st doses, and second doses are catching up at apace. Whilst there have been many success stories, some parts of the world, especially India, are experiencing a surge in the pandemic, and we can say with some certainty that the war against Covid 19 is by no means finished!

So, what has this meant for financial markets? Central banks have supplied unprecedented monetary stimulus to the global economy since the pandemic evolved. Financial markets have therefore been supported and equity markets have reached all-time highs in many regions. The S&P 500 index as we write is up over 8% ytd, and the Dow Jones Industrial Average 9.74%[1]. UK equity markets have also performed strongly, benefitting from the rotation out of growth/quality companies into value companies such as banks, miners and oil companies, which are the main constituents of the UK market. Bond yields remain relatively low but have seen some upward pressure as predictions for economic growth continue to be upbeat, with analysts frequently upgrading their forecasts for GDP. But markets always have to worry about something, and inflation is the “canary in the coalmine”.

In April, American consumer prices rose at their fastest rate in more than a decade, reinforcing fears over rapidly rising inflation and the consequence of rising bond yields and the overall effect on financial markets. While policymakers continue to insist that inflation’s ascent will be “transitory” as Covid 19 restrictions continue to be lifted, central banks seem reluctant to pare back their support for the global economy. Nevertheless, investors are becoming more anxious, with further rises in inflation forcing officials to tighten monetary policy that has helped to fuel asset prices. Technology companies and other growth stocks are particularly sensitive to rising inflation as it reduces the present value of cash flows. Commodity markets would be expected to benefit from rising inflation.

Where are we in the commodities cycle today? Prior to the onset of the pandemic, commodities had faced a decade-long bear market. Covid 19 appears to have been the trigger for the cycle to turn.

Low inventory levels and capacity constrained due to lack of capital investment since the financial crisis of 2008/09 has resulted in increased demand and commodity prices have been on the rise. With supply constrained and with the world looking to increase infrastructure spending (inherently commodity-intensive) as a way of boosting the economy and supporting employment, demand for commodities will remain strong leading to further price rises.

ESG and sustainable financing has been an ongoing topic of conversation and will undoubtedly have more prevalence in a post-pandemic world. In previous years, a sustainable investment centred on ‘long-term commercial performance issues such as with balance sheet strength, brand reputation, and enterprise value’[2]. This has now progressed to focus on green and ethical investing with the emergence of organisations such as the UK Centre for Greening Finance and Investment (CGFI) which serves to assist financial institutions in the ‘adoption and use of climate and environmental data and analytics’[3].

Will sustainable financing take a back seat as countries prioritise their Covid 19 recovery plans? This seems plausible and more likely probable with leaders such as Biden pledging $1.9 trillion into the American Rescue Plan with clean energy and climate change mitigation being overlooked[4]. This may be discouraging to some as during his run for office, Biden advocated an economic recovery focusing on a cleaner energy and a lower carbon footprint. This approach seemed reinforced when Biden resigned the US to the Paris climate accord within hours of becoming president[5].

The EU has been leading the way with the publishing of ‘The EU taxonomy’ on 22 June 2020, which is a classification system establishing a list of environmentally sustainable economic activities which provided clarity on which ones can be considered environmentally sustainable[6]. This will offer investors security, clarity and enable them to avoid greenwashing.

Bitcoin has come under recent scrutiny from Tesla as Elon Musk states the crypto currency industry is responsible for 1% of global electricity consumption[7]. This move appears to be the result of environmentalists objecting to Tesla’s commitment to allow its products to be purchased with Bitcoin. Tesla is held in high regard and seen to be an innovator towards a zero-emission future so cannot be seen to affiliate with companies that are not actively working towards a green future. Following Tesla’s pledge to avoid the use of Bitcoin, it will be interesting to see the implications to Bitcoins performance.

We expect markets to remain volatile, driven by the spectre of inflation and the ongoing pandemic. In our experience, investing in good quality companies through tried and trusted fund managers will deliver returns in the longer term. We continue to regularly monitor the performance and investment philosophy of the funds we hold and are in regular contact with the portfolio managers to ensure our goals remain aligned.

[1] International Business, World News & Global Stock Market Analysis (

[2] The transition of financial services to ESG and green finance |

[3] CGFI – The UK Centre for Greening Finance and Investment (

[4] Biden Is Betting His Whole Climate Agenda on Infrastructure | Financial Post

[5] Biden returns US to Paris climate accord hours after becoming president | Climate change | The Guardian

[6] EU taxonomy for sustainable activities | European Commission ([7] Why the Tesla Crypto Scandal May Have Proven That ESG Is Just Social Credit For Corporates (