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09 Jul 2021

Markets in a nutshell — June 2021

Global equities initially took fright when the US Federal Reserve brought forward to 2023 the date by when it expected US interest rates would first rise. Markets subsequently settled as the Fed downplayed inflation, supported by positive economic data and the vaccination rollout.

Developed market equities rose with US bourses outperforming on the $1 trillion infrastructure stimulus announcement and the gradual return to normalcy. European indices underperformed amid the rapid spread of the COVID-19 delta variant while Eurozone inflation leapt to 2% in May, surpassing the ECB’s target for the first time in two years. Emerging markets rose, led by oil exporters Brazil and Russia.

Interest rate sensitive sectors, materials, financials and utilities lagged while information technology, energy and healthcare led the market gains.

Developed market bond yields declined despite US and Eurozone inflation rising faster than expectations, after the Fed’s comments attributing the rise in inflation to transitory factors. The US dollar appreciated against the euro, British pound and Japanese yen. Investors bet that the US Fed would not tolerate runaway inflation after it brought forward its anticipated rate-hike timeline from 2024.

Commodities retraced as the dollar strengthened with precious metals gold and silver and industrial bellwether copper falling sharply. But oil rose above $70 a barrel for the first time in two years after OPEC+ signalled strong demand amid managed supply.

The Foord International Fund retraced in the month with commodity geared holdings the key detractors. Swiss healthcare company, Roche and the Hong Kong real estate developer, Wharf Holdings contributed most to the fund’s performance.

The Foord Global Equity Fund enjoyed strong contributions from Alphabet, JD.Com and bioproduction tools and services company Biolife Solutions. However, this was more than offset by commodity companies Freeport-McMoran, Pan American Silver and Wheaton. The managers maintain high conviction in the long-term alpha potential of the current core holdings.

Risk management remains at the forefront given the elevated risk environment. The managers continue to favour equities over other asset classes but remain cautious and partially hedged given lofty US equity valuations. The funds are well diversified and optimally balanced between protecting capital against elevated market risks and capturing the long-term inflation beating investment opportunities that we can see.

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