The end of year rally of markets came to a halt in December with the final month of the year delivering negative returns. The FTSE All World index declined 3.7%, and the high dividend index declined 1.6%. The Global Equity Income Model Portfolio declined 0.9%.

The portfolio’s insurance holdings of Admiral (+6.5%) and Hannover Re (+5.8%) performed well during the month. Both companies aim to make returns for their shareholders through superior underwriting rather than investment returns. Given poor investment returns generally in 2022, the industry is now relatively short of capital. This tends to increase underwriting discipline and so increases insurance rates and hence expectations of future profitability. The ETF position in Asia also performed strongly partly because of knock-on effects of China ceasing their unsustainable zero tolerance covid policy.

On the negative side the performance of technology sector was relatively poor with Microsoft (-6.0%) and Samsung (-5.0%) the main detractors.

Trading activity was limited.

The drivers for equity returns remain global liquidity, earnings, valuation and sentiment. The outlook for equities in 2023 and beyond still materially depends on what happens to inflation given the influence this has on the policies of central banks and hence global liquidity. If inflation continues to outstrip GDP growth, central banks will have little choice but to further drain liquidity. Earnings revision risk is generally tilted to the downside with consumers retrenching given increasing costs of living. There are however bright spots within certain sectors and geographic exposures. In terms of valuation and available dividend yields the UK market continues to offer attractive opportunities and the strategy remains overweight to shares listed in on this market.