Markets in a Nutshell — February 2022

Russian war threats against Ukraine turned into a full-scale invasion, trumping market worries about the direction and timing of the Fed’s interest rate decisions. Developed and emerging markets retraced as the risk environment deteriorated. Only a few commodity exporting countries benefited from the spike up in commodity prices. Commodities responded sharply on expectations of war-related supply shortages to come. Precious metals gold and silver were also well bid on the back of the rising risk environment.

Global sovereign bonds were little changed with the US 10-year yield rising at the margin. The geopolitical events mean investors have again become uncertain regarding the Fed’s hawkish stance on interest rate increases. The US dollar was little changed against all major currencies including the euro, British pound and Japanese yen as investors have adopted a wait-and-see stance as global uncertainties rise.

Safety first

The Foord International Fund again delivered a positive return despite declining equity markets, with the S&P 500 hedge positions materially protecting capital. The fund has gained 3.3% in US dollars in 2022 when global equity markets have fallen 7.7% in US dollars. Within equities, the fund’s investment in leading global copper miner Freeport-McMoran and holdings in precious metals streamers and agriculture-related companies contributed most to performance on higher prices across the commodities complex. Chinese tech holdings detracted as the short-term regulatory headwinds in China show no signs of abating just yet. The Foord Global Equity Fund also outperformed the MSCI (ACWI) index in the month, driven by allocations to materials and agricultural companies and some technology and industrials holdings.

Elevated Risk Environment

The Foord funds were already on a cautious footing before Russia’s invasion of Ukraine. We are in the midst of an inflection point in global inflation and interest rates with large implications for the liquidity cycle. The inflationary cycle is now likely to be prolonged due to the commodity price increases and supply chain constraints. There is also a rising risk of a significant mark down in global economic growth given the European growth implications of constrained gas supplies.

Lastly, the ongoing China economic rebalancing and property developer slowdown is also a near-term headwind. This is precisely what we have been talking about when we say, “elevated risk environment”. But Foord’s scenarios-based approach and probabilistic risk framework means that the funds are well positioned for the unfolding environment. Liquidity has been kept at a maximum so that the managers can move rapidly when needed to exploit the long-term opportunities that the current situation is likely to offer up.

Your investors’ assets are in safe hands.