Multi Asset Funds: December 2021

Summary

• Global markets drifted higher until mid-month, where a new strain of Covid-19 - the Omicron variant, sparked fears amongst investors.

• The renomination of the Fed Chair Jerome Powell took place during the course of the month, as his tenure was extended for an additional four years. 

• In the month of October, US CPI increased to 6.2% year-on-year, the highest price increase since November 1990.

• According to Our World in Data 43.6% of the world’s population were fully vaccinated as of 30 November 2021, compared to 38.7% in the previous month.

Market update   

Global markets drifted higher until mid-month, where a new strain of Covid-19, the Omicron variant sparked fears amongst investors. As a result, the FTSE All-World Index fell 2.5% over the month in November, after a 5% surge in the previous month. Bonds were marginally down, as the Bloomberg Global-Aggregate Total Return Index retreated 0.3%. 

Auxiliary to the new strain of Covid-19, the renomination of the Fed Chair, Jerome Powell, took place during the course of the month and his tenure was extended for an additional four years. Shortly thereafter, the re-elected Fed Chair opted to take a decidedly more hawkish tone toward monetary policy, as the threat of a faster reduction in overall asset purchases than previously articulated is now up for debate. Similarly, the latest FOMC minutes point toward a potential rise in the federal funds rate to tame inflationary pressures if need be. 

Inflation continues to be a concern for global markets amid supply chain disruptions and elevated housing costs. In the month of October, US CPI increased to 6.2% year-on-year, the highest price increase since November 1990. Unsurprisingly, many forecasters have subsequently upwardly revised their near-term inflation projections. 

It is worth noting that we have seen a resurgence in Covid-19 cases in Europe as the winter months are in full swing. This has resulted in more stringent lockdown restrictions in the region, despite elevated vaccination rates. In contrast to the US, the more cautious monetary policy stance taken by the European Central Bank has also placed downward pressure on the euro.  

On the emerging markets front, the relative underperformance of China continued despite the recent repo injections from the People's Bank of China to provide market liquidity. This has likely been offset by relatively lacklustre economic data and a continued deterioration in the credit impulse which declined 8.8% year-on-year in October. We remain cautious on China before taking a firmer stance in our fund positioning.  

The global vaccination rollout continues to make significant headway. According to Our World in Data, 43.6% of the world’s population were fully vaccinated as of 30 November 2021, compared to 38.7% % in the previous month. 


Fund strategy

We believe that there is further upside in broader equity markets, as economic data remains above trend. Similarly, notable downward revisions to fourth quarter economic growth leaves room for upside surprises, as we progress into the close of the year. We are still particularly selective in our positioning as event risk remains high.   

We continue to believe that a more material recovery is expected on a full-year basis, as precautionary savings fully unwind, and as economic activity recovers off a low base. The vaccination rollout continues which is positive for the global economy, as lockdown restrictions continue to be lifted. The peak in the inflation trajectory continues to be complicated by the degree to which elevated rental and housing costs are reflected in shelter prices, which is roughly a third of the inflation basket in the US.  

From a fixed-income perspective, to mitigate against event risk, we have moved to be relatively neutral on duration. 

[1] All performance metrics are stated in I Class terms.