MARKETS IN A NUTSHELL - MAY 2022

With developed market equities ending flat and emerging markets slightly up, one could be forgiven for thinking that May was uneventful. It was in fact another volatile month that included the markets’ worst one-day return in nearly two years. This was followed by a final week rally, driven (ironically) by hopes for more dovish US Federal Reserve policy on prospects of slowing growth. Continued market volatility should be expected in the near term, given the myriad uncertainties around persistent inflation, rising interest rates and slowing economic growth.

With a quarter of its market cap in energy and mining stocks and a further third in defensive sectors, UK’s FTSE 100 Index posted further gains. It has bested nearly all developed markets so far this year. Among emerging markets, commodity-driven and export-oriented Brazil rose sharply, remaining one of the best performing markets this year, while Indian equities fell as higher commodity prices weigh on growth expectations.

At the sector level, energy stocks rose on continued oil price rises while financials remain buoyed by the endowment effect of rising interest rates. Consumer sectors underperformed on concerns that persistently high inflation has begun to weigh on consumer household balance sheets.

Developed market bonds were little changed as yields retraced modestly from their mid-month peak as investors fretted over whether the current forward yield curve may already be discounting sufficient interest rate increases to quell inflation expectations.

The US dollar weakened against all major currencies but widening interest rate differentials coupled with the dollar’s safe-haven status have concurrently served to materially strengthen the greenback this year.

The oil price posted double-digit gains for the fourth time in six months, driven by supply uncertainty given the prospect of additional Russian sanctions on already suppressed inventory levels and rising demand. Prices for gold and silver declined, now having given up much of their year-to-date gains. Rising real interest rates have increased the opportunity cost of holding these yield-free precious metals. Given the elevated risk environment however, they continue to serve a critical diversification purpose in the Foord funds.

The Foord International Fund delivered another good month with holdings in lithium miner Livent and German pharmaceutical Bayer contributing most to fund returns in the volatile market. With a year-to-date US dollar return of 3.2% against the global equity index -13.0%. The fund’s conservative, absolute-return approach is protecting investor capital as expected. The Foord Global Equity Fund also outperformed, driven by holdings in communication services, consumer staples and industrials.           

The funds are carefully balanced with meaningful allocations to securities best placed to provide long-term inflation beating returns. The multi-asset Foord International Fund also maintains tactical market hedges to reduce near-term market risk and holds ample liquidity with which to seize the long-term investment opportunities that volatile markets typically provide.