MARKETS IN A NUTSHELL - SEPTEMBER 2022

September was another difficult month as global equities continued their downward march with investors becoming increasingly worried about the prospects for economic growth. As uncomfortable as these events might feel, as long-term investors we take them in a positive light to the extent that the capital market distortions resulting from many years of absurdly loose monetary and fiscal policy settings are steadily unwinding. With every ratchet down, the prospective investment opportunities and concomitant expected returns improve markedly. We are excited about the growing opportunity set and the funds are well placed to exploit them for our investors. 

Developed market equities fell sharply, with US bourses underperforming their European counterparts. Although earnings forecasts have yet to fall, the Conference Board is now forecasting that 2023 real GDP in the US will slow to 0.3% year-on-year compared to a previous 2022 estimate of 1.4%. UK bourses led European markets lower as the British pound fell to its lowest level against the dollar since 1985 after government borrowing costs surged on Chancellor Kwasi Kwarteng’s seemingly fiscally irresponsible mini-budget.

Emerging markets underperformed, led lower by Chinese bourses, with the resumption of Chinese travel to Macau not being enough to offset the overhang of rising youth unemployment, challenged exports and a troubled property sector.

At the global equity sector level, the declines were broad based, with those most sensitive to rising real interest rates such as real estate and information technology falling most. Defensive sectors including healthcare and consumer staples were more resilient.

Fixed income markets provided no respite with developed market bond yields rising as the US yield curve stayed inverted (a reliable indicator of pending economic recession). The Bank of Japan is the only notable outlier as it continues to hold bond yields low through market manipulation as per its yield curve control policy – a potential source of global financial market instability should they be unable to hold the line.

Industrial commodities oil and copper also declined as recession fears rose on the Fed’s resolve while soft commodities were mixed. The gold price continued its steady decline, which is somewhat perplexing given the elevated market risks, but is likely the result of the increased opportunity cost of holding a yield-free asset in a rising real interest rate, strong dollar environment.

The Foord International Fund’s dynamic asset allocation strategy has meaningfully protected investor capital this year while the Foord Global Equity Fund has outperformed the index and 85% of global peer group funds. The Foord Asia ex-Japan Fund has also delivered material alpha during the 2022 bear market environment.

High levels of liquidity have been maintained across the funds to maximise flexibility in the volatile environment that is likely to persist for a while. The funds are well positioned to build on year-to-date outperformance as our base case bear market investment thesis continues to unfold.