Global equity markets fell in April as the FTSE All-World Total Return USD Index fell 7.9% over the month, bringing the year-to-date drawdown to 12.6%. Continued hawkish monetary policy rhetoric in April combined with inflation fears have resulted in substantial bond market volatility with the FTSE World Broad Investment-Grade Bond Index retreating 5.7% over the month, bringing the year-to-date drawdown to 11.8%. Commodities continued to appreciate over traditional asset classes of equity and fixed income with the Bloomberg Commodity Index returning 4.1% over the month.
Further disappointing economic data coming out of China in April escalated global growth fears. China PMI’s fell below the neutral 50 mark, highlighting that the economy is contracting. Further Covid outbreaks across the region in April have added to declining investor sentiment as the government stands by its economically detracting zero-covid policy. The lockdowns not only affect China’s domestic economy but have global implications as supply chains come under further pressure.
The US consumer is facing numerous headwinds with rising costs of borrowing and higher staple prices such as food and energy. These headwinds come at a time when savings rates are back at 2013 levels. The fiscal thrust that buoyed the US consumer last year has now faded and real disposable income is being eroded by inflationary pressures. European consumers are under meaningful pressure too as the Russia-Ukraine conflict leads to elevated natural gas prices in Europe compared to other regions. To this end, German consumer confidence, as measured by the European Commission Consumer Confidence Index, continues to be on a downward spiral.
Hawkish rhetoric from the US Federal Reserve compared to other major central banks has helped increase the relative attractiveness of the dollar thus far. In fact, year-to-date the US dollar has appreciated by more than 12.7% against the Japanese Yen. The two regions’ central banks continue along diverging paths of monetary policy with the Bank of Japan continuing its stimulus package as inflation remains well below its 2% target.
Covid-19 cases continue to abate as the global vaccination rollout continues to make significant headway. According to Our World in Data, 59.2% of the world’s population was fully vaccinated as of 30 April 2022, compared to 58% in the previous month.
Heading into 2022, we are cautious about the returns for global equity markets as many of the catalysts that propelled equities in 2021 are fading. Supportive monetary and fiscal policy is starting to dissipate, particularly in the US. It will be important to remain on high alert as global liquidity is drained from financial markets. Accordingly, we continue to hold positions in defensive sectors such as consumer staples, and utilities. On the inflation front, we continue to believe that CPI will dissipate in the second half of 2022 as we assume that supply chain bottlenecks will likely unwind and as demand-pull inflation eases. In addition, shelter price base effects from 2021 will likely lead to a disinflationary backdrop, particularly in the second half of 2022, as a more meaningful acceleration seems unlikely due to rising affordability concerns likely limiting house and rental price appreciation.
While both the USD Global Growth and Balanced Funds were down 4.9% and 4% in April respectively, this was better than the Morningstar peer group return which retreated 5.1% and 4.3% for each respective fund. The relative underweights to the US and Europe and more defensive positioning likely led to peer group outperformance. Nevertheless, the decline in both fixed income and equity markets made for a tough investing environment. Lastly, our most defensive fund, the Sterling Asset Management Fund, contracted 3.4% largely due to its high fixed income structure. We continue to remain vigilant by keeping the overall fund beta at lower levels compared to the majority of last year, particularly as capital preservation remains a top priority in the current operating environment.
 All performance metrics are stated in I Class terms.
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