After the positive start to the year, February was more disappointing for global investors. Volatility of equity markets is likely to remain high given uncertainties about central bank responses to elevated inflation. With inflation not declining as fast as many had hoped, expectations for continued interest rate rises saw higher growth equities perform worse than traditional value ones. Volatility remains elevated. In this environment active managers can look heroic and villainous from one month to the next, and the best performing stocks one month can be the worst the next. Taking a long-term view on returns and valuations is always the most sensible approach.
Despite the positive environment in China, and high excess savings, companies exposed to the nation generally performed poorly. Negative sentiment towards Chinese shares was likely triggered by escalation of tensions with the USA with a “spy balloon” being shot down in US airspace early in the month resulting in cancellation in several planned diplomatic meetings. The National People’s Congress in early March spelled out China’s plans to return to growth and the country will report above 5% GDP growth in 2023. Despite a dubious vaccination program, the nation will endeavour not to report issues with Covid. Compliance of course may consider correcting these statements as nothing is guaranteed, however typically reported, if not actual, Chinese data are uncannily like their own forecasts. Elsewhere European activity data surprised positively which together with lower multiples saw superior performance to US listed equities.
The FTSE All World High Dividend Index declined by 3.1% while the Global Equity Income portfolio fell 1.4%. Outperformance was largely due to the disparate performance of equities geographically and the relatively better performance of traditional value to traditional growth stocks. The fund’s best performing holding were BP (+11.9%), Shell (+5.4%) and BAE Systems (+3.1%). Worst performers held were AT&T (-7.2%), Samsung (-6.9%) and DBS Group (-6.8%).
Global Equity Income Portfolio -1.4% BP +11.9%, Shell +5.4%, BAE Systems +3.1%. AT&T -7.2%
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