- Investment Manager
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The quarter (1 April to 30 June 2022) continued to be dominated by the war in Ukraine. As a result, inflation continued to rise and interest rates increased further in the UK and US. Central Banks continue to aim to strike a balance to contain inflation and keep growth positive. Some economic health indexes, which are based on surveys taken from businesses, show continued expansion in their economies to varying degrees, albeit these are lower than they had been given various concerns, in particular relating to inflation and interest rates.
As the impact of continued higher inflation and interest rates affects economies, one area that will also come into focus will be the impact on corporate margins, which have so far been resilient, particularly in the US. However, it is likely that there will be some downgrades to margins as companies start to report their Q2 earnings. The extent of these downgrades is likely to vary between industries, although some are priced into markets at the moment.
In the UK, the FTSE 100 was down by -3.74% as inflationary pressures increase, rates rise and both consumer and business confidence impacted the markets. The more domestic focused index of with the FTSE Small cap was particularly affected, being down -9.48%. Many businesses have been impacted by price increases, yet at this stage most still have cash available to absorb some of the impacts. Consumer confidence on the whole remains fairly supportive, but as ever there are variations in different sectors and businesses within them.
In the US, markets were down over the quarter, with the S&P falling by -9.5% in sterling terms. This was largely owing to the continued large cap growth and information technology sell off as investors rotated to more valuable areas, such as financial companies, as inflation and interest rate rises also caused concerns. In Asia, the MSCI AC Asia ex Japan Equities Index was down -2.15% on what was a volatile quarter as concerns around higher inflation, ongoing supply-side issues and the covid policy in China all impacted the markets. There was positive news towards the end of the quarter as covid policies were relaxed, and investor sentiment was boosted after some surprising business activity data appeared with more positive numbers than had been forecast.
We continue to actively engage with all of our fund managers and within the fixed income asset class to monitor how these funds are positioned should fiscal tightening be accelerated ahead of expectation. Many are positioned cautiously in companies that continue to have strong cash flows to meet their debt obligations. We continue to look at what is driving short term sentiment in the markets against the potential for longer term opportunities. When managing our clients’ funds, we favour active fund managers, who keep an eye on the market at all times. This means that when new opportunities arise, they’re proactive, moving portions of existing holdings into new areas, where they see a potentially better opportunity set moving forward on a risk/reward basis.
We also continue to remain overweight in a pool of diversified real asset funds. Some of the underlying investments in the funds are assets with inflation linked contractual payments often backed by governments. Our portfolios remain diversified across each asset class, sector and geography, and our approach has the flexibility to take advantage of the changes in the markets throughout this period.
This information is obtained from sources considered reliable, but its accuracy and completeness is not guaranteed by Anderson Strathern Asset Management Limited. Neither the information nor any opinions expressed constitute financial advice. Investments can fluctuate in price, value and/or income and may return less than the original amount invested. Past performance is not necessarily a guide to future performance. Anderson Strathern Asset Management Limited is authorised and regulated by the Financial Conduct Authority.