Fund Manager's comment for January 2022
The world economy had the wind at its back in 2021 with a generous fiscal policy and accommodative Central Bankers. Inflation and supply chains have been identified as the key obstacles to earnings growth with Central Banks now focusing on dealing with the latter. In the US the Fed is expected to
increase interest rates four times during 2022 and, with inflation increasing in the UK to 5.4% in December, the consensus forecast is for the BoE to hike its policy rate by 25 bps to 0.5% at its February meeting. In Europe recent data provided further confirmation of an economic soft patch with the Eurozone January services PMI index declining by more than expected and the corresponding index in the U.K. declining further in January.
The net effect of the expected tightening in monetary policy has been to put pressure on the high PE valuations of the market and the growth stocks in particular. This has resulted in the MSCI declining by 5.3% during the month, largely driven by similar declines in the broader US market where the S&P500
index reported an overall decline of 5.3% as well. The tech heavy NASDAQ declined by 9.0% from a high of 15,901.5 on 28^th December representing almost 40 times earnings.
The UK markets responded similarly with the broad indicator, the FTSE 250 Index closing down by 6.6% over the month as compared to the FTSE 100 which was up by 1.1%. The FTSE 100 is home to many larger, older and more traditional companies including BP, Royal Dutch Shell and various utility
companies which under-performed the high growth technology stocks over the last two years and are now seen to be offering value. The Fledgling Index was down by a mere 1.9% during the month. The Small Cap Index declined by 4.1% while the AIM All Share Index showed the biggest decline of 10.0%.
While our REIT exposure held up well and was mostly unchanged in January, the higher PE growth stocks in the portfolio declined in line with the negative market sentiment resulting in a 9.0% decline in the portfolio for the month of January. The NAV decline of 9.1% reflected once again that the expenses have been contained. We have remained fully invested, making no changes to our existing positions during the month with cash comprising 4.1% of the portfolio at month end.