2020 saw the market pull back a third in response to Covid concerns. This resulted in the first bear-market since the 08 global financial crisis. This was moderated with exceptional measures by almost all central banks, by way of aggressively dropping interest rates and thus stimulating spending. This worked, albeit in the short-term as markets recovered in record time, ending 2020 without losses. Move forward 2 years and with the resulting inflation, central banks have few options but to raise the dropped interest rates to address escalating inflation. The results have seen markets largely pull back across the board.

As before, our portfolios are designed to take this volatility with many of our solutions pulling back only a handful of percent (circa -6%) in comparison to market (-20%). As unsettling as the negative numbers may be, please remember we design our strategies knowing full well that risk is an ever constant in investing. Put differently, we know impact will occur, and so having portfolios that can handle impact is vital. -6%, in a market that is reversing, is a good result, as unsettling as it seems.

As always, if you would like to chat more here, please give us a shout!

For more detail, please see the exquisite piece by Brendan and the PMX team below.

Sending love to you and yours,
Richard and the F&A Team

This piece was compiled by Brendan de Jongh, SA Head of Research at PortfolioMetrix.

The second quarter generally saw poor performance across most asset classes with the main exception of commodities and Chinese domestic shares. Unusually, bonds and equities fell together as central banks aggressively increased interest rates to try to control inflation. Commodities continued to benefit from global shortages resulting from sanctions on commodity exporting Russia after their invasion of Ukraine. 

However, as markets shifted from an inflationary sell-off to recessionary concerns commodities gave up some of their gains. Chinese equities benefitted towards the end of the quarter as the country began to emerge from its strict lockdowns. Volatility, as measured by the VIX index, rose almost 40% over the quarter. Developed market equities (as measured by the MSCI World Index including dividends) fell 16.1% in US dollar terms over Q2 and emerging market equities (MSCI EM Index) fell 11.4%. Global bond yields rose steadily over the quarter leading to higher credit quality bonds (as measured by the Bloomberg Global Aggregate Index) falling 8.3%. Lower quality ‘high yield’ bonds also fell, down just under 12% as investors worried about weakness of the global economy. Despite these concerns oil was up 6.4% over Q2 whilst gold fell 6.7%.

Local Fund Commentary

Provides a commentary on the past quarter, its events and their impacts; as well as more intimate commentary on each moving part within your portfolios.

Global Fund Commentary

Provides intimate commentary on each moving part within your portfolios.