© FT montage; Getty, AP, Alamy, Bloomberg

It looks as if there is going to be a wave of capital destruction around the world. This time it will be unleashed not by capitalism, but by the policies of governments.

The top-down green revolution will be reinforced by policymakers as a way out of the slump. It means faster closures of aircraft and car factories and the writing down and write-off of more coal oil and gas investments. It requires the accelerated retirement of a whole generation of heating systems and family cars, less air travel and big changes to cities and their property estates.

Directed from the global climate conferences and pushed hard by the new EU commission, it will be dramatically reinforced should Joe Biden win the US presidency. He will wish to reverse the Trump administration’s rearguard actions to defend and promote oil, gas, coal and traditional cars.

There will be investment opportunities in the new batteries, renewable energy, electric heating and new travel options as people are required or persuaded to make the changes to their lives, and personal housing and transport assets.

Meanwhile, the popular digital revolution has just won many recruits thanks to lockdown restrictions and social distancing. People who were worried about how to use digital technology, or who preferred older methods of buying, paying and meeting others have been converted at least temporarily to the online version for want of the alternatives.

There are many more businesses with digital conferencing and sales facilities, more homes with entertainment downloads and Zoom video calls to friends and families, and more services from gym routines to shopping taking place online. This in turn brings demand for more software, more laptops, more smartphones and tablets, more cyber protection and more broadband capacity.

There have been company and sector winners even during a period of economic desolation, when great economies have lost a fifth or more of their incomes and output.

Yet the gap between where stock markets are and where company profits, dividends, rents and output have gone gets wider by the day.

The wall of money released by the US Federal Reserve and other leading central banks, plus the large fiscal boosts offered by governments around the world, have carried shares upwards as expected. Many investors are going along for the ride, seemingly ignoring the deep scarring of economies. Others join in apprehensive about how the markets seem to be out of line with the news.

If the current excitement about a vaccine turns out to be true, then more of our lives stand to get back to normal more quickly. Once enough people are vaccinated, the social distancing and threat of future closures can fall away.

If that does not happen, there can be more damage to all businesses that depend on personal contact. Any flare up in the virus will lead to local lockdowns, as we have seen in California and in Leicester, and deter more people from getting on a bus or train or going to the shops. Trying to run a restaurant, hotel or bus service with social distancing means higher costs and lower revenues.

The FT Fund, as a balanced fund, has been running with a little more than half in shares and the rest in bonds. The fund is up a little so far this year, which is a competitive result for a balanced fund in these volatile conditions.

The portfolio is making full use of the specialist world indices that cover the areas of the digital revolution that can flourish in these conditions. This means it has a concentration in the US, where many of the quoted companies in these areas reside. It is also invested in the green energy world index to capture some of the advances that come from the treaty-based climate policy changes.

I keep asking myself how much longer will the central banks and governments keep offering so much assistance to economies and markets? It looks as if we are settling into a prolonged era of ultra-low interest rates and monetary support to avoid a financial crash on top of the Covid-19 crisis. That judgment is fundamental to staying invested and may need to be revisited if the authorities become complacent about recovery. I see no signs of a fast, V-shaped recovery in the advanced world.

There will also be big changes from the acceleration of the digital and automation revolution. The online retailers have gained a lot of market share during lockdown and will keep some of that as shops reopen. High streets will change, or shrink.

The rise of artificial intelligence, online banking, cashless transactions, internet insurance and professional services, digital consultations with doctors, at-home downloads of entertainment, and access to more information on ever-smarter phones and tablets will all be features of this new universe.

The large US tech stars have performed very well, leaving the US Nasdaq index holding which contains them as the largest share index position in the FT Fund. They will face battles ahead as governments seek to tax and regulate them more and as competitors emerge with better solutions.

I reduced the fund’s exposure to property substantially some time ago, as I was worried about the future of retail properties and was just beginning to have concern about offices.

The wholesale temporary closures of expensive city centre commercial property will lead to a rethink of how much of such property companies want and can afford. The greater stability we have always expected of rents rather than dividends was blown out of the water by the pandemic, with many tenants unable or unwilling to pay rents at the last two quarter days. It is going to take a long time to sort out the property consequences.

Sir John Redwood is chief global strategist for Charles Stanley. The FT Fund is a dummy portfolio intended to demonstrate how investors can use a wide range of ETFs to gain exposure to global stock markets while keeping down the costs of investing. john.redwood@ft.com

The Redwood Fund — July 22, 2020
Name% Portfolio
ISHARES USD TIPS 0-55.60%
L&G All Stocks Index-Linked Gilt Index I Acc4.60%
SPDR BofA ML 0-5 Yr EM $ Govt Bd UCITS ETF2.40%
iShares Global Inflation Linked Government Bond ETF8.60%
Invesco US Treasury Bond UCITS ETF GBP Hdg Dist11.20%
Lyxor iBoxx USD Treasuries 7-10Y (DR) UCITS ETF-D6.30%
EMQQ Em Mkts Internet & Ecommerce UCITS ETF Acc3.40%
WT CLOUD COMPUTING USD ACC1.50%
iShares Digitalisation UCITS ETF3.10%
Invesco Nasdaq 100 ETF13.20%
HSBC FTSE EPRA/NAREIT Developed ETF1.90%
iShares Global Clean Energy2.90%
L&G ISE Cyber Security ETF3.70%
L&G ROBO Global Robotics and Automation UCITS ETF3.00%
iShares Core MSCI World ETF4.10%
Vanguard FTSE Japan ETF1.80%
Vanguard FTSE 250 ETF4.00%
X-trackers S&P 500 UCITS ETF GBP Hedged ETF8.80%
X-trackers MSCI Taiwan ETF4.80%
Cash Account [GBP]5.10%
100.00%

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