MARKETS IN A NUTSHELL - APRIL 2022
April saw another month of broad-based financial market weakness with all major asset classes in the red as markets confront the implications of stubbornly high and seemingly accelerating inflation. Foord’s base-case macro-thematic outlook has turned out to be largely on point, as the myriad capital market dislocations of the previous decade manifest as market volatility.
Foord’s safety-first philosophy is aptly expressed in the returns of the flagship Foord International Fund: it is up +3.3% in US dollars this year when global share markets have declined -12.9%. While the funds are broadly well positioned for the current environment, we recognise that it remains an uncomfortable period for investors.
Global bourses slumped as US Federal Reserve comments suggested larger than expected interest rate increases in the months ahead. Investors in US Treasuries are now pricing in additional interest rate hikes of 2.5% from May to the end of 2022. The spike in the US 10-year yield affected long-duration growth stocks most, with the tech-heavy Nasdaq Composite suffering its worst monthly performance since October 2008.
Emerging markets also fell, led down by materials exposed South American markets Chile, Peru and Brazil on inflation concerns and commodity retracement. Chinese markets fell on the negative growth effect of its continued zero-covid policy.
All sectors were lower apart from defensive consumer staples, although the energy sector is the only one with a positive year-to-date return. The selloff in growth sectors picked up pace with tech, consumer discretionary and communication services moving lower.
Bond market investors incurred heavy losses as developed market bond yields rose sharply. The US 10-year Treasury yield shifted up meaningfully on steep inflation prints and the increasingly hawkish Fed comments.
Oil gained marginally but was volatile intramonth with prices driven by uncertainty on supply, strategic reserves and Russian sanctions. Most soft commodities rose as weather, the Ukraine war and high fertilizer costs presented worries for crop yields. Precious metals gold and silver declined, usually given the weaker equity and bond markets. These alternative stores of value face competition from fixed interest instruments whose yields have finally risen on speculation for more aggressive Fed tightening compared to prior expectations.
The US dollar rose materially against all major currencies as widening interest rate differentials and the currency’s safe-haven status supporting the greenback.
The Foord International Fund’s hedges including the sizable short S&P 500 futures position contributed materially to fund returns in the declining market, while the investment in global copper miner Freeport-McMoRan detracted on falling copper prices. The Foord Global Equity Fund outperformed the index and its peer group, driven by the allocations to consumer staples, energy and consumer discretionary stocks.