After a shaky start to October, global markets rose to near record highs, bolstered by a strong set of third quarter earnings reports. Here in Britain, we had a budget that will raise the overall tax burden to its highest level since the 1950s. In Washington, Congress managed to kick the debt ceiling deadline into December, while Biden fought to get his spending bills through with his razor-thin majority. Meanwhile, world leaders flew to Scotland for the climate change summit. Readers may feel they’ve heard enough about COP26 to last until next year’s COP27 (to be held in Sharm El-Sheikh), but it is important to evaluate the summit’s implications for portfolios.


In the UK, short-term bond yields rose sharply from 0.4% to 0.7%, as markets concluded that the Bank of England is likely to raise rates in the next few months. However, the 10-year yield was flat, and longer 30-year yields fell, suggesting that investors were betting that inflation would be transitory. The move boosted our Vanguard Gilt tracker, which rose 2.6%, a strong result for a government bond fund.

In Westminster, the government presented its budget, under which the UK tax burden will rise to its highest level since 1950. For investors, however, the budget’s importance is diminished from in the past; more than two-thirds of the FTSE-100’s revenue comes from overseas.

Later in Scotland, world leaders gathered in Glasgow to thrash out climate change responses. In a boon for our planet, various countries pledged to reach net zero. However, for investors, it is important not to confuse volume and value; despite the pledges, clean energy stocks have fallen by 15% this year. We believe that ethical investors need not sacrifice performance, so long as they incorporate quality into their portfolios. For example, our L&G SRI tracker, which sits in our Ethical portfolios and provides exposure to high quality technology stocks, rose +5.8%.


The US economy continued to strengthen in October, with unemployment falling to 4.8% and wages rising 5.5% year-on-year. Corporate America also seems in good shape, with Q3 earnings reports showing strong profit growth. Tech giants Microsoft and Alphabet reported 22% and 41% revenue growth respectively. By focussing on high-growth areas, our Baillie Gifford American fund managed to beat the benchmark to return +3.9%.

America’s political scene was less rosy, with Biden struggling to push his spending packages through the Congress. Washington managed to avoid hitting the government debt ceiling but postponed the deadline until December.


The EU began distributing its pandemic recovery funds in October. Italy and Spain – the main beneficiaries of the funds – announced they would not even try to balance their budgets until much later in the recovery.

Germany’s large automotive sector is feeling the pinch of the global semiconductor shortage. Modern cars are packed with computers, so have been particularly hit; Germany’s other manufacturing sectors seem unaffected. Happily, our Montanaro European Income fund was one of the best performers in October, delivering +4.6% on strong performance from the likes of Swedish roof box maker Thule, which rose over 10%.


Data from emerging markets suggests mobility and activity are picking up as vaccinations roll out. Rising inflation is now a risk there too; particularly eye-catching was Brazil hiking rates by 1.5% to dampen price rises.

Chinese stocks rebounded after a rough few months, partly thanks to progress on containing the fallout from the Evergrande crisis. The country saw its growth decelerate in the last quarter, with growth falling to 4.9%, but it seems likely the country can still achieve its full-year 6% target thanks to strong growth in the spring.


Japan’s new prime minister Fumio Kishida comfortably won the country’s general election. The Nikkei fell for eight days after the victory, as Kishida vowed to raise dividend and capital gains taxes. However, he later reversed course.


Investors’ attentions are moving away from Covid and towards its after-affects and normalisation. Supply chain squeezes have weighed on activity and fed inflationary pressure. Despite this, we view long term stagflation as unlikely. Demographics and technology should keep a lid on inflation, while pent-up demand, cash-rich balance sheets and robust investment plans should support growth. COP26 highlights the importance of sustainability, both for the planet’s future and your portfolio.