Summary

• Investor jitters were apparent yet again in July with the VIX “fear gauge” spiking to 22.5 mid-month amid a rise in COVID-19 Delta variant cases before retreating to 18.2 at the end of the month.
• Cyclical sectors underperformed during the month, while more defensive sectors outperformed.
• Notable progress continues to be made on the vaccination front. The UK and US have fully vaccinated 57% and 49% of their population respectively.
• China continues to underperform broader emerging markets as the credit impulse delves deeper into negative territory.     

Market update   

Investor jitters were apparent yet again in July with the VIX “fear gauge” spiking to 22.5 mid-month amid a rise in COVID-19 Delta variant cases before retreating to 18.2 at the end of the month. On the back of another episodic and non-trending volatility spike, the S&P 500 and FTSE All-World Index continued an upward trend climbing 2.4% and 0.7% respectively in July. The bond market was also on edge with the MOVE Index (implied volatility in one-month treasury options) spiking to 69.3 mid-month – the highest level since the end of March – before easing to 61.2 at the end of the month. For now, overall cross asset volatility remains contained, although we maintain that the investment climate will be challenging as we progress further into the second half of the year, particularly as global growth momentum begins to lose steam. While we expect notable progress on employment statistics in the coming months, mostly as unemployment benefits come to an end, this will likely be accompanied by guidance on a reduction in the US Federal Reserve’s asset purchasing programme.

With elevated inflation statistics from around the globe surpassing many analysts’ expectations, the Refinitiv/Core Commodity CRB Index climbed 2.2% in July after rising 3.7% the previous month. However, cyclical sectors underperformed during the month, while more defensive sectors outperformed. We believe this is likely a sign to proceed cautiously heading into the second half of the year as sector and style dispersion will likely be different when compared to the first half – particularly as the growth backdrop begins to slow.

Notable progress continues to be made on the vaccination front. The UK and US have fully vaccinated 57% and 49% of their population respectively according to the latest figures from Our World in Data . Despite rising cases due to the COVID-19 Delta variant, mortality rates remain well-contained underpinning the efficacy of the vaccine roll out to date.

It is worth noting that China continues to underperform broader emerging markets as the credit impulse delves deeper into negative territory. 

Fund strategy

We believe that there is further upside in broader equity markets, however, we have become particularly selective in our positioning by lowering the overall beta exposure in the Ashburton Investments multi asset fund range as warning signs continue to rear their head on the global front. In particular, the Chinese credit impulse has delved even deeper into negative territory signalling that the second half of the year will certainly experience slowing growth momentum. Additionally, the global thrust from fiscal stimulus has been largely front-loaded resulting in a much more circumspect investing style relative to previous months. We acknowledge that the re-opening of many economies will provide investment opportunities and we will certainly be looking to position for this accordingly.

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. As the vaccine rollout continues, it’s a positive for the global economy as lockdown restrictions continue to be lifted. The inflation trajectory at this juncture is complicated by the degree to which escalating rental and housing costs will begin to reflect in shelter prices (roughly a third of the inflation basket in the US). Some elements of inflation, however, are expected to soften, particularly those impacted by supply chain disruptions. While monetary policy is expected to remain accommodative, talks of a reduction in the Federal Reserve’s asset purchasing programme are expected to commence in the coming months.

Short-term global yield curve movements have been relatively sporadic amid uncertainty on future growth, inflation, and policy dynamics. Accordingly, we are relatively neutrally positioned from a duration perspective in the Ashburton Investments multi asset fund range. However, we have begun to add small gold positions as a hedge for slowing growth momentum and to diversify our fund positioning.  

Fund performance 

The Ashburton Global Growth Fund climbed 1.1%[1] above the benchmark and peer group of 1% and 0.5% respectively. The addition to defensive sectors such as utilities and real estate in the US, as well as our allocation to gold during the month were among the primary reasons for outperformance. Other multi asset funds such as the USD Ashburton Global Balanced Fund (USD) climbed 0.9% and the Ashburton Sterling Asset Management Fund rose 1.1% - above their Morningstar peer groups which registered 0.6% for each fund.    

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