We continue to be active in the portfolios and trading activity over 2020 was greater than normal. We expect to make further changes over the coming quarters as we continue to reposition the portfolios in response to rapidly changing market and economic conditions. Over the last few months we have been gradually building up our equity exposure. The recent purchase of the FTSE 100 index tracker proved to be well timed and benefited from November’s bounce in markets. For once, the UK was the strongest amongst the major global markets.
The outlook is looking rosier. However, global markets are already reflecting the improvement, and areas such as US technology related stocks appear dear. Many of these stocks have performed very strongly over the last few years and have received a further boost thanks to the pandemic. As a result, the importance of these companies within the index has grown significantly. We are sure that some great businesses can be found in this sector but expectations in the market are very high. Not least, we have concerns about the growing threat of greater regulatory oversight and anti-monopoly action. History has not been kind to investors who overpay for profits promised in the distant future. Our preference is for more mundane, less glamorous companies which tend to be more reliable, though we are beginning to look more closely at recovery plays at this stage in the cycle.
Long term returns are likely to be more modest than markets have produced over the last few decades. Interest rates and government bond yields look set to remain at negligible levels for years to come. Investors must be prepared to risk their capital if they intend to maintain its value versus inflation, never mind hope to grow it in real terms. Equity returns are likely to average medium to high single digits. We continue to uncover opportunities for attractive, albeit modest returns from secure investments however, the main driver of any return must come from equities. We have been adding to this latter component of the portfolio. We are in the stage of the investment cycle when gains from stockmarkets are typically at their most sustainable. However, our enthusiasm is tempered by high valuations within the US market, and not least of its leading technology related businesses, as well as the precise implications of Brexit where short term costs will need to work through the economy in the UK.