Calm before the storm
by Mark Wright, CFA
— We now find ourselves in the eye of an inflationary storm
Not long back from my first holiday abroad since the pandemic, I was looking out my window longing to be back swimming in the warm Mediterranean ocean off the East coast of Mallorca. I will spare you the details of the travel chaos we experienced both ways, it was a lesson learned!
I was expecting 10 days of sun and nothing much else weatherwise, but it didn’t quite turn out like that. We were fortunate enough to witness not just one but two thunderstorms. I say fortunate because they served as a healthy reminder that it is always calm before the storm.
Market Snapshot
- Global equities fell by 5.1% last week
- The past week saw 500bps of global rate hikes across 15 central banks including The Federal Reserve and the Bank of England
- Brent crude fell by 5.7% over the week to $86.15 a barrel
- Gold fell by 1.9% to $1643.9 per ounce
The rally in equity markets that started in mid June continued into the first half of August, taking Wall Street 17% off its June low, but was ultimately overwhelmed by the global energy crisis and extraordinary falls in bond markets through the month, reversing most of the gains of the previous two months. The biggest falls came in Europe, and most extreme was the UK, where yields on 2-year government bonds rose by 130bps, taking the yield to 3.0% at month end, the highest for 15 years. The UK 10-year yield also rose dramatically, up by 94bps to 2.8%. Eurozone bond markets fared only slightly better, with the German 2-year yield up by 93bps to 1.19% and the 10-year up 73bps to 1.54% over the month.
The Law of Lindy
by Tom Delic
— Often the most successful new businesses are centred around ideas that satisfy age-old basic human wants and needs.
In 1964, American author and academic Albert Goldman wrote an article in US magazine The New Republic, titled ‘Lindy’s Law’. While dining at Lindy’s, a New York delicatessen, Goldman became interested in the discussions that took place between entertainment industry veterans who frequented the restaurant and would analyse the latest televised comedy shows. While the Lindy effect is a useful heuristic to apply across many aspects of our lives, we can also use it as a filter in the portfolios we manage for clients.
Market Snapshot
- Global equities fell by 3.3% last week
- Commission President Von der Leyner is considering various measures to deal with the current cost of living turmoil
- Brent crude fell by 7.9% over the week to $93.0 a barrel
- Gold fell by 1.5% to $1712.2 per ounce
Navigating fund fees and finding value
by Gary Moglione
— New regulations in the UK are making it increasingly difficult for multi-asset funds to hold investment trusts.
As investors in the investment trust market, we have seen the UK market grow significantly over the years. In addition to diversification and access to many asset classes not usually available to retail investors, closed-ended trusts have significantly outperformed open-ended funds over the long term. In the UK, over the ten years to September 2021, the average investment company returned 265% versus the average open-ended fund returning 70%.
Market Snapshot
- Global equities fell by 1.6% last week
- In Ukraine, talks with President Zelensky, UN Secretary General António Guterres, and Turkish President Recep Tayyip Erdoğan were held in Lviv with Turkey acting as the key interlocutor between Ukraine and Russia
- Brent crude fell by 1.5% over the week to $96.7 a barrel
- Gold fell by 3.1% to $1747.1 per ounce
After a torrid six months, with global equities suffering a 20% decline and most developed world sovereign bond markets producing negative returns each month in the first half of this year, there was finally relief in July. Led by Wall Street, with the S&P 500 up over 9% in the month, the MSCI World index returned 7.9%, while the JPMorgan Global Government Bond index returned 1.9%. Riskier parts of the bond market, which had sold off heavily in the first half of the year, recovered sharply, with US investment grade bonds +3.2%, high yield bonds +5.9%, and emerging market debt +4.0%.
Change – it’s a constant
by Gary Moglione
— We need to operate closer to the frontiers of where technology is going.
Back in February I gave a sob story of my childhood of how the 1970s and early 80s saw “austerity” hit my household, including my father’s industrial clothing factory closing down. Recent developments on the Continent, brings another childhood memory to mind; cold housing. Admittedly, the central heating system, decades past its use by date and an insufficiently insulated house, was not conducive to staying warm. However, an article caught my eye in the Financial Times this week that showed the average temperature in British homes has risen considerably since the 1970s; even those that actually had central heating in 1971 saw average temperatures rise from circa 14C to 18C today.
Market Snapshot
- Global equities returned 3.0% last week, marking the first fourth consecutive weekly advance this year
- Stocks rallied after US data showed signs that inflation, while still elevated on an annualised basis, had started to slow
- Brent crude rose 3.4% last week to $98.15 a barrel
- Gold rose 1.5% last week to $1802.4 per ounce
Shinzo Abe; a tragic death but a promising legacy
by Robert White, CFA
— Japanese equities should form an important part of any truly global portfolio today.
Japan has been in the headlines for the sad and shocking death of Shinzo Abe, one of the few truly visionary democratic leaders in modern times. The former Prime Minister was instrumental in transforming Japan’s economic and military ambitions, and while both remain a work in progress, he became a revered figure on the international stage. As investors, we are optimistic about the opportunity in Japanese equities; not only are they cheap, but nascent structural reforms and robust corporate profitability should provide a healthy tailwind over the coming years.
Market Snapshot
- Global equities rose 0.6% last week
- China responded to US House Speaker Nancy Pelosi’s visit to Taiwan with 3 days of military tests and drills that encircled the island
- Brent crude fell by 14.4% over the week to $94.12 a barrel
- Gold rose 1.4% to $1790.57 per ounce
Build up not out
by Richard Stutley, CFA
— Debt is a great way to ruin a good investment.
I met with one of our underlying global listed property managers last week and I thought some of the discussion points were worth repeating here. Until such time that we all live in the metaverse, what is happening with physical space remains important, with implications for investors beyond dedicated property buyers.
From a sector perspective, we discussed the supply outlook for industrial/logistics space, following Amazon’s announcement earlier this year that they plan to mothball several new warehouse projects and sublet excess space.
Market Snapshot
- Global equities rose 3.6% last week
- The Federal Reserve Systems’ fourth rate hike this year raised interest rates by 75bps to 2.5%, as forecast
- Brent crude rose 6.6% over the week to $110.01 a barrel
- Gold rose 2.2% to $1765.94 per ounce
Finding your anchor
by Stephen Nguyen, CFA
— Debt is a great way to ruin a good investment.
What a difference a few months make. After a relatively calm year in 2021, we have witnessed several asset classes posting significant losses in the first half of 2022, including equities, credit, and sovereign bonds. We have seen an increase in volatility, and traditional diversifiers like government bonds have failed to provide protection as their correlation with risky assets has risen. The increase in correlation between bonds and equities has caused major headaches for the traditional multi-asset investors.
Market Snapshot
- Global equities rose 3.6% last week
- The Federal Reserve Systems’ fourth rate hike this year raised interest rates by 75bps to 2.5%, as forecast
- Brent crude rose 6.6% over the week to $110.01 a barrel
- Gold rose 2.2% to $1765.94 per ounce
The sharp downturn in financial markets this year broadened and deepened in the second quarter, resulting in an exceptionally difficult six months for investors. While in Q1 there were some pockets of strength – commodities, gold, UK large-cap equities, and a small number of emerging equity markets and currencies, in the second quarter the only positive returns of note came from oil and Chinese equities. With the dollar surging throughout the period, the only safe haven to preserve capital in dollar terms was US dollar cash. Developed equities returned -16% in Q2, led by the US, and are now down by over 20% YTD.
