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08 Jul 2022

MARKETS IN A NUTSHELL - JUNE 2022

It is worthwhile at the half-year point to put context to the events of 2022, with global markets unequivocally into bear market territory. Markets took fright early in the year at higher and more persistent inflation and as central banks began to withdraw stimulus. As is typical of liquidity driven market shocks, most asset classes sold off and there was little diversification benefit available from the typical 60/40 investment strategy. Notwithstanding, with its safety-first approach, the multi-asset Foord International Fund year-to-date drawdown is just -0.4% against the peer group average of -13.5%. 

More latterly, it has been growing economic recessionary fears that are moving markets, as inflation prints remain stubbornly high and central banks turn increasingly hawkish. Equity markets sold off further in June, with US and European bourses crossing bear market thresholds with drawdowns exceeding 20%. However, US bond yields have started to fall and commodity prices have started to reverse quite sharply — reflecting growing fears of a global economic slowdown.

Pleasingly, the Foord funds have performed excellently as our baseline thesis of a significant, albeit uncomfortable, multi-decade inflection point continues to unfurl. As previously noted, the Foord International Fund has protected investor capital and outperformed 95% of its Morningstar USD Flexible Allocation peers this year. The Foord Global Equity Fund has outperformed the index and 90% of peer group funds, driven by security section within the information technology and consumer discretionary sectors. The Foord Asia ex-Japan Fund also outperformed its benchmark in June, driven partly by the fund’s underweight to the poorly performing information technology sector. 

In June, global equities fell sharply on fears that the Fed can no longer orchestrate a soft landing. The S&P 500 Index recorded its worst first-half performance since 1970, while Chinese bourses were the best performing global stocks causing emerging markets to outperform. Developed market bond yields rose, with US 10-year yields retreating as investor worries for untamed inflation gave way to recession fears. 

The US dollar strengthened against all major currencies as widening interest rate differentials coupled with the dollar’s safe-haven status have concurrently served to materially strengthen the greenback this year. Oil fell for the first time this year and pressures in soft commodities also began to ease. Gold declined as real rates now on offer on some instruments increase the opportunity cost of holding gold. Silver, which doubles as an industrial metal, fell further on economic growth concerns. 

It is noteworthy that the major strategic positioning across the funds has not changed materially in the last year or two. This should be expected given our repeated proclamations that we were positioning early for what lurks beyond the horizon, as forty years of managing risk has taught us to do. Our forward looking, safety-first approach keeps us alert to the risks and opportunities that lie ahead. The funds are well positioned to both protect investor capital through the bumpy markets and seize the long-term investment opportunities as and when they arise.

 

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