Markets in a nutshell — May 2021

Global equities sustained their rally on robust corporate earnings and vaccination rollouts. Developed markets led the gains on the gradual return to normalcy. European equities gained most as more economies relaxed COVID-19 restrictions—boosting travel, leisure and retail stocks. US bourses edged higher as growing inflation worries offset positive corporate commentary on the growth rebound.

Emerging markets were mixed, with India rebounding strongly on declining coronavirus cases and expectations of further relief measures. China underperformed on antitrust scrutiny of technology companies and slowing manufacturing growth.

Foord has talked for some time about the risks of rising inflation expectations given the extremely loose global monetary policy settings. Volatility rose this month as higher inflation prints increased the probability that the US Federal Reserve would taper bond purchases earlier than expected. Markets started to ponder the possibility of rising interest rates and the impact that might have on asset price valuations.

Developed market bond yields were flat on US Fed’s ‘wait-and-see’ approach to inflation and interest rates and the US dollar weakened on the Fed’s dovishness and improving global economic data. Commodities continued to rally on rising global growth, large proposed infrastructure investment programs and the weaker dollar. Precious metals gold and silver rallied on rising inflation expectations while copper closed at all-time highs.

Precious metals streamer Wheaton Precious Metals, copper miner Freeport McMoran, US pharmacy chain CVS and UK energy company SSE contributed the most to the Foord International Fund’s return while top fund holding FMC Corp retraced. The Foord International Fund’s investment in Nagacorp secured bonds matured in the month. The 3-year investment yielded 9.325% per annum in US dollars, comfortably meeting the fund’s investment objective of US inflation + 5% per year. The managers remain ever alert to such select opportunities.

The Foord Global Equity Fund’s outperformance of the MSCI ACWI benchmark was driven by gains in materials sector companies Wheaton Precious Metals and Freeport McMoran, as well as Nutrien. Chinese technology holdings JD.Com and Baidu detracted but remain high conviction long-term 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.