The first quarter of 2022 saw global equities falling -2.6% for sterling investors as inflation worries, geopolitical tensions and central bank tightening unsettled investors. In March, most major equity markets rebounded, but have only partially repaired the losses of the previous two months. The two major events that drove the quarter were a shift in the so far accommodative monetary policy approaches as spiking commodity prices created inflationary pressures and Russia’s invasion of Ukraine.
In regional terms, the UK equity market ended Q1 2.9% higher, outperforming its peers as it benefited significantly from the commodity rally and the escalation of energy price movements since the start of the year. In the monetary policy front, last year, the Bank of England was the first major central bank to raise interest rates in December and to indicate that further hikes would follow. The bank followed this up with another rate rise in March, leaving benchmark interest rates at 0.75%.
The main US market fell -1.9% (-6.3% for the US technology sector) as rising yields affected the more yield-sensitive growth and tech sectors. Energy and utility firms, however, erased some of the indices’ losses as they saw strong performance on the back of the Ukraine Russia situation and the commodity rally that the escalations caused. European equities fell sharply in Q1, -7.4%. Even though there has been some relief following the announcement that the US will supply the EU with American Liquefied Natural Gas, a deal that aims to reduce the region’s dependency to Russian energy, uncertainty around supplies remains and consumer sentiment remained low over the quarter.
Emerging Market equities dropped -4.3% over the quarter. China, the main driver of performance in the index, faced slowing economic activity as the region struggled with a new covid outbreak, which forced local authorities to impose strict lockdown measures. Japanese equities also ended the quarter down -3.9%. In contrast with most of the world’s central banks, which have started tightening policies to tame the high inflation levels, Bank of Japan announced in March a plan to expand its quantitative easing program.
In commodities, oil prices soared 38.5%. Prices were already at all-time highs as global economic recovery was well underway following the March 2020 pandemic outbreak, but the volatile situation between Russia and Ukraine created further anxiety around tight global supplies. Looking at the next quarter, focus will remain on monetary policy and inflation while we monitor geopolitical tensions.
DEFENSIVE - Portfolio Activity: Asset Allocation & Fund Selection
Asset Allocation
There were no changes in the asset allocation this quarter. Throughout the quarter we maintained our equity overweight position. We continued to hold our overweight position in European and Emerging Market equity markets, and we also retained our allocation to the UK large cap market. In fixed interest, we kept an underweight to bonds.
Portfolio Performance & Underlying Holdings
It was a negative quarter for the portfolio with the biggest falls occurring at the beginning through to mid-quarter. Overall, equities lost ground over the course of the quarter, but it fixed income that witnessed the biggest overall falls. The alternatives sector managed to produce positive returns offsetting some of the downside for investors
Within equities, the star performer was the Fidelity Asia Pacific ex Japan fund in absolute returns whilst it was the Schroder Recovery fund that produced the strongest positive contribution to the portfolio. The main detractor for performance came through Japanese equities with the growth style bias of the JPM Japan fund struggling in the current environment. in addition, Emerging Markets and European funds negatively contributed, whilst the mid cap UK equity had a torrid quarter. Within fixed income, every holding produced a negative return, with the biggest negative contribution coming from the Barings EM Debt fund.
Fund Selection
We did not add or remove any funds this quarter.
CAUTIOUS - Portfolio Activity: Asset Allocation & Fund Selection
Asset Allocation
There were no changes in the asset allocation this quarter. Throughout the quarter we maintained our equity overweight position. We continued to hold our overweight position in European and Emerging Market equity markets, and we also retained our allocation to the UK large cap market. In fixed interest, we kept an underweight to bonds.
Portfolio Performance & Underlying Holdings
It was a negative quarter for the portfolio with the biggest falls occurring at the beginning through to mid-quarter. Overall, equities lost ground over the course of the quarter, but it fixed income that witnessed the biggest overall falls. The alternatives sector managed to produce positive returns offsetting some of the downside for investors
Within equities, the star performer was the Fidelity Asia Pacific ex Japan fund in absolute returns whilst it was the Schroder Recovery fund that produced the strongest positive contribution to the portfolio. The main detractor for performance came through Japanese equities with the growth style bias of the JPM Japan fund struggling in the current environment. In addition, Emerging Markets and European funds negatively contributed, whilst the mid cap UK equity had a torrid quarter. Within fixed income, every holding produced a negative return, with the biggest negative contribution coming from the Barings EM Debt fund.
Fund Selection
We did not add or remove any funds this quarter.
BALANCED - Portfolio Activity: Asset Allocation & Fund Selection
Asset Allocation
There were no changes in the asset allocation this quarter. Throughout the quarter we maintained our equity overweight position. We continued to hold our overweight position in European and Emerging Market equity markets, and we also retained our allocation to the UK large cap market. In fixed interest, we kept an underweight to bonds.
Portfolio Performance & Underlying Holdings
It was a negative quarter for the portfolio with the biggest falls occurring at the beginning through to mid-quarter. Overall, equities lost ground over the course of the quarter, but it fixed income that witnessed the biggest overall falls. The alternatives sector managed to produce positive returns offsetting some of the downside for investors
Within equities, the star performer was the Fidelity Asia Pacific ex Japan fund in absolute returns whilst it was the Schroder Recovery fund that produced the strongest positive contribution to the portfolio. The main detractor for performance came through Japanese equities with the growth style bias of the JPM Japan fund struggling in the current environment. In addition, Emerging Markets and European funds negatively contributed, whilst the mid cap UK equity had a torrid quarter. Within fixed income, every holding produced a negative return, with the biggest negative contribution coming from the Barings EM Debt fund.
Fund Selection
We did not add or remove any funds this quarter.
CAPITAL GROWTH - Portfolio Activity: Asset Allocation & Fund Selection
Asset Allocation
There were no changes in the asset allocation this quarter. Throughout the quarter we maintained our equity overweight position. We continued to hold our overweight position in European and Emerging Market equity markets, and we also retained our allocation to the UK large cap market. In fixed interest, we kept an underweight to bonds.
Portfolio Performance & Underlying Holdings
It was a negative quarter for the portfolio with the biggest falls occurring at the beginning through to mid-quarter. Overall, equities lost ground over the course of the quarter, but it fixed income that witnessed the biggest overall falls. The alternatives sector managed to produce positive returns offsetting some of the downside for investors
Within equities, the star performer was the Fidelity Asia Pacific ex Japan fund in absolute returns whilst it was the Schroder Recovery fund that produced the strongest positive contribution to the portfolio. The main detractor for performance came through Japanese equities with the growth style bias of the JPM Japan fund struggling in the current environment. In addition, Emerging Markets and European funds negatively contributed, whilst the mid cap UK equity had a torrid quarter. Within fixed income, every holding produced a negative return, with the biggest negative contribution coming from the Barings EM Debt fund.
Fund Selection
We did not add or remove any funds this quarter.
ADVENTUROUS - Portfolio Activity: Asset Allocation & Fund Selection
Asset Allocation
There were no changes in the asset allocation this quarter. Throughout the quarter we maintained our equity overweight position. We continued to hold our overweight position in European and Emerging Market equity markets, and we also retained our allocation to the UK large cap market. In fixed interest, we kept an underweight to bonds.
Portfolio Performance & Underlying Holdings
It was a negative quarter for the portfolio with the biggest falls occurring at the beginning through to mid-quarter. Overall, equities lost ground over the course of the quarter. The alternatives sector managed to produce positive returns offsetting some of the downside for investors
Within equities, the star performer was the Fidelity Asia Pacific ex Japan in absolute returns whilst it was the Schroder Recovery fund that produced the strongest positive contribution to the portfolio. The main detractor for performance came through Japanese equities with the growth style bias of the JPM Japan fund struggling in the current environment. In addition, Emerging Markets and European funds negatively contributed, whilst the mid cap UK equity had a torrid quarter.
Fund Selection
We did not add or remove any funds this quarter.
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