April saw a sustained barrage of Federal Reserve speeches and events. One count was of 45 meetings in just 20 days. With the US banking system continuing to display signs of pressure on the regional banks, central bankers were keen to demonstrate the situation was under control. We continue to see deposit flight to larger better capitalised institutions. The message from the central banks is still that they will reduce global liquidity to tame inflation, and that the US economy is set for a mild recession.
The month saw many companies report earnings. As is typical earnings estimates tend to be well managed by corporates in advance of reporting. Given a weakening economy and typical over optimism for many companies third party estimates generally declined in advance of announcements decreasing the importance of results versus consensus estimates, and enhancing the importance of future guidance from companies. We have for some time been focused on trying to position the fund with companies that can deal with elevated levels of inflation. Pleasingly the consumer staples names held have successfully been passing on inflation, and our healthcare, technology companies and the luxury goods names have also been less impacted than the general market.
The FTSE All World Index gained 1.6% during the month and the Global Equity Growth Model Portfolio declined 1.1%. The best performers held were Smith & Nephew +19.1%, Lancashire +12.7% and Novartis +11.7%. While the worst performers held were Enphase -21.9%, Alibaba -18.3%, and NXP Semiconductors -12.2%.
Smith and Nephew, the medical technology company, provided a sales update suggesting that our investment case of a resurgent number of elective procedures. The firm remains on a large multiple differential to peers. Despite record results, with sales up 65% year on year, Enphase disappointed investors with lower than anticipated guidance due to an envisaged slow-down in purchasing behaviour by fitters and changes in subsidies in California. Over the medium term, these changes ought to be positive for the company as they will encourage customers to install batteries which they also sell. The company actually expects these changes to be positive for them.
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