The market continued its upward trend in March as the FTSE All-World Index climbed 2.8% after rising 2.4% in February, as further progress is made on the vaccination front and a new bout of fiscal stimulus was approved in the US totalling $1.9 trillion. It is worth noting that roughly 56% of Israel’s population has now been vaccinated and the corresponding downturn in mortality rates suggests that we are one step closer to a post COVID-19 world. However, there is still a long way to go, as just below two percent of the world’s population have been vaccinated to date according to the latest figures from Our World in Data.
The reflation trade wobbled in March with the Refinitiv/Core Commodity CRB Index down 2.9% after four consecutive monthly gains and still some distance from erasing the 9.3% gain we saw in February. Nevertheless, bond yields pusher higher during the month, with the US 10-year bond yield climbing to 1.74% at the end of the month compared to 1.4% the previous month.
As expected, the Federal Open Market Committee (FOMC) opted to keep the federal funds target range unchanged at 0-0.25%. However, notable upward revisions were made to GDP growth, 6.5% from 4.2% and inflation +2.4% from 1.8% - this shows the forecast this year compared to previous projections. While the FOMC have acknowledged that inflation is expected to overshoot their 2% target, the impact is expected to transitory largely due to base effects and have signalled that rate hikes are unlikely in the near-term. Another important development from the FOMC was the confirmation that the exemption of commercial bank treasury purchases and deposits at the Federal Reserve from the calculation in the supplementary leverage ratio officially came to an end on the 31 March 2021.
Despite some jittery market moves during the course of the month, the VIX “fear gauge” eased to 19.4 in March from 28 in February. Similarly, cross asset volatility including FRA-OIS spreads, OAS spreads and foreign exchange volatility pricing remain well contained and suggest most aspects of the global financial system remain stable for now. In addition, global financial conditions remain extremely accommodative and should continue to support broader asset prices.
It is worth noting that the Chinese equity market dragged down broader emerging markets during the course of the month. Accordingly, China has likely moved into a stagflationary environment with growth dynamics peaking in February and inflation set to rise in the coming months.
We remain constructive on the US financial and energy sectors and maintain our overweight position, as we believe that the reflation trade has further upside from here. In addition, we have added US industrial sector exposure and broadened our equity overweight position to the UK and Europe. We maintain that reducing exposure to lower beta utilities and health sectors remains appropriate due to the inelastic nature of their product and services offerings relative to the economic cycle in cyclical upswings. This has certainly been showcased year-to-date.
We remain constructive on emerging markets excluding China amid potential high growth rates in corporate earnings. We maintain our bearish view on the dollar, despite a temporary pause in this trend due to rising real yields, amid its counter-cyclical nature in a global economic upswing. Accordingly, a resumption in the dollar down trend may well provide renewed impetus to broader commodity prices.
We believe that the rollout of a viable vaccine this year will continue to be a positive catalyst to the global economy, although this will likely take some time to be rolled out at scale. Overall, we are encouraged by the more upbeat outlook and believe that the easing of lockdown restrictions combined with the unwinding of precautionary household savings will catalyse equity markets this year.
The Funds continue to be underweight duration to avoid the adverse effect from curve steepening amid better growth prospects currently being priced into markets.
The Global Growth Fund climbed 2.2% in March, in line with its benchmark of 2.2%. Our overweight equity position combined with exposure to high yield credit were noteworthy contributors. Some of our more cyclical sectoral exposure lost some steam during the month, although have had a stellar performance year-to-date. The Global Balanced Fund climbed 1.4% and the Sterling Asset Management Fund rose 0.4%.
 All performance metrics are stated in I Class terms.