Artisan Canvas

While not as dramatic as during the global financial crisis, dividends in 2020 have taken a hit: Dividends globally declined some $108 billion to $382 billion in Q2—a 22% YoY drop. An estimated 27% of companies globally cut their dividends, including more than half of European companies. In the UK, 176 companies canceled dividends altogether. The story is slightly different in the US:

As governments globally seek fresh means of stemming the economic devastation wrought by COVID-19 and its attendant lockdowns, a common consideration is infrastructure spending—hardly surprising, considering governments have historically turned to infrastructure as a means of creating jobs and, ideally in turn, goosing consumption (see: Alphabet Soup, FDR). Considering it’s a public good which can often go begging when the economic outlook is rosier, infrastructure seems a natural candidate amid a period of flagging aggregate demand. And indeed, 2020 has seen its share of planned infrastructure spending globally.

The pandemic has accelerated secular trends—such as the shifts to e-commerce and digital payments, social media’s dominance of advertising spend and the rise of gaming. It’s also intensifying normal cyclical fluctuations, pulling forward home improvement projects and pressuring retailers—particularly those reliant on shopping mall locations—to declare bankruptcy. None of this is terribly surprising. More likely to catch market participants’ eyes, the combination of COVID-19 and social media is amplifying the oldest cyclical phenomenon known to mankind: greed!

Supply/Demand is a semi-regular feature of the Artisan Canvas rounding up interesting and quirky subjects from across the Internet with a focus on economic and business trends. A good rule of thumb among the Artisan Canvas editorial staff is “never reason from a price change.” With that in mind, we present Supply/Demand.

Broadly speaking, commodities prices have risen considerably since early March’s sharp downturn. Is this portending an economic recovery as demand picks up? Or are we facing down sustained supply chain disruptions?

Active, bottom-up oriented investors can be caught flat-footed by unforeseen bouts of volatility—indeed, 2020 has already seen several unprecedented selloffs and remarkable recoveries. However, a bottom-up approach needn’t preclude using tools to help identify and, to the extent possible, mitigate the portfolio risks associated with meaningful market reversals. Admittedly, market unwinds will likely never be entirely foreseeable. But we believe it is possible to anticipate periods where the risk of a market reversal is high—and as active managers, to then reevaluate the risk-return tradeoff for portfolio holdings with material unwind risk.

Relative to the US, Europe’s stock markets have a reputation of being staid, dominated by “old economy” industries and national champions. But Europe may no longer deserve this reputation. Since the global financial crisis (GFC), the makeup of Europe’s equity market has undergone a gradual but meaningful evolution.

Amid a world of economic headwinds, the US housing market has been a bright spot—delivering a V-shaped recovery since April’s plunge and possibly offering some insight into the efficacy of the Fed’s activities year to date, as well as broader consumer health.

Well, the Congressional music seems not to have stopped just yet—with the deeply divided House and Senate continuing their (unsurprising) stimulus dance. The negotiations have moved little since late July, when Senate Republicans released their outline for a $1 trillion bill (which they’ve since followed up with a scaled-back plan). For their part, Democrats have thus far remained committed to the House’s $3.5 trillion package, passed on a near-party-line vote in May.

But is further stimulus yet warranted?

ESG has been an increasingly hot topic over the past couple years—and if anything, the recent pandemic and accompanying market volatility have accelerated many ESG-related conversations. As a firm without a centralized research function or a CIO, Artisan Partners’ approach to ESG and related topics has necessarily looked different.

Russia has had its fair share of market-moving news this year. Normally, the dispute with Saudi Arabia over oil production and President Putin’s announcement he would reset his term limits would take center stage—yet both have been overshadowed by the dual threats of COVID-19 and the corresponding pressure on oil demand. The economy has predictably struggled, with GDP down 9.6% YOY in Q2, while personal incomes fell 8.0%. Predictably, the ruble has also weakened relative to both the euro and USD—likely a byproduct of not only relative economic weakness but also the oil price collapse.

While the market has responded as we might expect (the MSCI Russia Index is down 22.5% YTD through July in USD terms), Russia is nevertheless still near the middle of the EM pack. It trails countries which have rebounded sharply, such as China and Taiwan, while leading harder-hit compatriots Brazil, Turkey, Hungary and Greece.