The last seven days have felt like a rollercoaster in markets with big daily moves in asset prices and volatility remaining high throughout the week. The constant newsflow and short-term noise can prove slightly overwhelming at times like this and frankly it can be unconstructive to making sound long-term investment decisions. We have focused our efforts in recent days and weeks on meeting with or speaking to the underlying fund managers in the portfolios, as opposed to simply relying on BBC news, to get a better understanding of how the current global backdrop is impacting holdings.
At a market level we witnessed big moves in oil markets with the US banning Russian oil imports and the UK stating that they would phase out of Russian oil by year end. At one point on Tuesday, we saw Brent Crude momentarily touch $139 a barrel before falling heavily on Wednesday and is now currently at around $112 a barrel. Prices at the petrol pumps hit all-time highs this week and this will act as a pinch to the consumer. The higher prices are in effect a windfall for the UK government given the level of fuel duties. It will be interesting to see if there are any reductions to these duties to support consumers.
Gold was once again an asset in demand this week as prices rose through $2,000 an ounce on geopolitical and inflationary fears. At times it can be a frustrating asset to hold, but we continue to see the merits in holding this real asset that offers good portfolio diversification and has returned circa 10% this calendar year.
It was not all doom and gloom in equity markets this week. On Wednesday European equities were in favour with the German equity index rising a staggering 7.9% in a day. The UK and wider global equities all participated in this relief rally too, which appeared to be driven in part by the rumours that Zelensky may be willing to agree to certain Russian demands. It’s a reminder of how quickly things can change and highlights the risk of being out of markets. Positive UK data, which showed the economy emerged strongly from the Omicron variant in January, boosted UK equities on Friday; the FTSE 250 index is now on course for its best week in a year, albeit after falling heavily last week. The strong data may encourage the Bank of England to once again raise interest rates when they meet next week.
US inflation came in at a new 40 year high of 7.9% on Thursday, which was in line with consensus. The expectation is that inflation will continue to rise in the coming months as rising oil and commodity prices feed into the data. With the US Fed also meeting next week, many are expecting to see their first interest rate rise of this current cycle.
As mentioned in the first paragraph we have been meeting with a lot of fund managers recently and will continue to over the coming weeks. There were some interesting takeaways; a global equity manager said that their portfolio was flagging the highest upside to fair-value since August 2020. A UK equity fund manager said that they had personally invested in their own fund this week, acknowledging that they didn’t know if this was the bottom, but it provided a good entry point on a medium-term time horizon. We were also reminded of the embedded inflation protection built into some of our infrastructure and real asset holdings. We will continue to carry out this exercise and focus on making sure we are partnered with talented fund managers and diversify across asset class, investment style and geography.
Andy Triggs | Head of Investments, Raymond James, Barbican
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.