Q1 Market Commentary 2022

The first quarter of 2022 was dominated by the conflict in the Ukraine. Looking beyond the humanitarian impact, the crisis has created volatility and distorted markets. Central banks have remained on guard as inflation numbers have increased and this has led to interest rates rises in the UK and US. Energy companies have clearly been the biggest beneficiaries in the short term as prices have spiked. The UK has also benefited as the FTSE 100 has a large weighting to the Energy & Materials sectors. In general, the UK has outperformed many other global equity markets during the quarter.

Corporate earnings on the whole continue to be revised upwards, and most of the manufacturing and services indices reflect expansion in their economies to varying degrees. In many of the non energy and materials sectors, the average price has come down sharply, and in some cases the declines have ignored strong earnings growth. Many companies also have cash in hand and flexibility in their businesses to pass through some of the inflation costs.

The FTSE 100 index rose by 2.9% over the quarter as commodity prices rallied. The more domestic facing sectors suffered short term from concerns around increased input costs and the potential impact on the consumer. Many businesses have been hit on prices, and yet at this stage continue on the whole to pass through the increased costings, with cash within the underlying business absorbing some of the impacts. Consumer confidence on the whole remains fairly supportive and the pent up demand from the lockdowns is still moving the economy forward, albeit slightly slower than originally forecast.

In the US, markets were down over the quarter, with the S&P falling by 2.0%. This was largely owing to the continued large cap growth and Information Technology sell off as investors rotated to more value areas such as Financials. In Asia, the MSCI AC Asia ex Japan Equities Index was down 5.2% on what was a volatile quarter, due to concerns around higher energy prices, COVID policy in China, and the delisting of some Chinese companies listed on the American Exchanges (due to a lack of audit disclosure requirements set by the US). Later in the quarter fears eased as China signalled that increased regulation in the internet/ecommerce had been completed, which provided the sector with a welcome lift. The growth target of 5.5% for 2022 looks to require further monetary and fiscal support, which should boost markets that are heavily discounted relative to other global indexes.

We continue to actively engage with all our fund managers and within the fixed income asset class to monitor how they are positioned should fiscal tightening be accelerated ahead of expectation. Many are positioned cautiously in companies that continue to have strong cash flows to meet their debt obligations. We continue to look at what is driving short term sentiment in the markets against the potential for opportunity longer term. We remain overweight in equities favouring active managers, who have been trimming and adding to positions when opportunities arise. We also continue to remain overweight in a pool of diversified real asset funds. Some of the underlying investments in the funds are assets with inflation linked contractual payments often backed by governments. Our portfolios remain diversified across each asset class, sector and geography, and our approach has the flexibility to take advantage of the changes in the markets throughout this period.

This information is obtained from sources considered reliable, but its accuracy and completeness is not guaranteed by Anderson Strathern Asset Management Limited. Neither the information nor any opinions expressed constitute financial advice. Investments can fluctuate in price, value and/or income and may return less than the original amount invested. Past performance is not necessarily a guide to future performance. Anderson Strathern Asset Management Limited is authorised and regulated by the Financial Conduct Authority.