Multi Asset Funds: February 2022

Summary

• Global markets endured their worst monthly sell off since the inception of lockdown restrictions back in March 2020, as the FTSE All-World Total Return USD Index declined 4.8%.

• The increasingly hawkish rhetoric of the US Federal Reserve combined with weaker-than-anticipated economic data catalysed the pullback in equity markets over the month.

• On the emerging market front, the Chinese credit impulse has improved, and monetary policy has indeed become more supportive.

• According to Our World in Data, 52.8% of the world’s population were fully vaccinated as of 31 January 2022, compared to 48.5% in the previous month.  

 
Market update   

Global markets endured their worst monthly sell off since the inception of lockdown restrictions back in March 2020, as the FTSE All-World Total Return USD Index declined 4.8%, completely erasing the 4.1% rebound seen in December. The increasingly hawkish rhetoric of the US Federal Reserve combined with weaker-than-anticipated economic data catalysed the pullback in equity markets over the month. This spilled over into the fixed income market as tighter monetary policy expectations filtered through to a repricing of yields as the FOMC have decidedly taken a firmer policy stance to stem inflationary pressures in the coming months. Accordingly, the FTSE World Broad Investment-Grade Bond Index (WorldBIG) retreated 2.3% in January. At the time of writing, Fed Fund futures are pricing in over five 25 basis rate hikes in the US this year, although no firm decisions have been made by the Fed as to the exact timing and magnitude of the potential balance sheet run-off process. 

Energy has been a notable outperformer to start off the year as oil prices re-accelerated. In fact, the broad-based increase in several commodity prices, if sustained, will likely be met with a tighter monetary policy stance at the next FOMC meeting. Towards the end of the month, more defensive sectors such as consumer staples and utilities displayed a higher level of resilience relative to their higher beta counterparts. This is in line with the disappointing economic data seen for much of the month, signalling downside risk to near term growth prospects. Similarly, cross asset volatility indicators are showing signs of stress, particularly as high yield option adjusted spreads start to drift higher and as the VIX “fear gauge” remains elevated. Escalating tensions between Russia and the Ukraine also pose near-term uncertainty.  

On the emerging market front, the Chinese credit impulse has improved, and monetary policy has indeed become more supportive. At this moment, we remain relatively cautious on China, although our expectation is for improved credit conditions, which combined with low market multiples could see us become more constructive during 2022.   

The global vaccination rollout continues to make significant headway. According to Our World in Data, 52.8% of the world’s population were fully vaccinated as of 31 January 2022, compared to 48.5% in the previous month.  

Fund strategy

Heading into 2022, we are cautious on the returns for global equity markets as many of the catalysts that propelled equities in 2021 will likely fade. Supportive monetary and fiscal policy, particularly in the US, is starting to dissipate. It will be important to remain on high alert as global liquidity is drained from financials markets. For now, the developed market consumer income statement and balance sheet position stand in good stead, although we expect precautionary savings to fully unwind in the near-term unless further lockdown restrictions are erected. Price pressures from supply chain bottlenecks will likely begin to unwind in the new year as trading conditions normalise. In addition, shelter price base effects from 2021 will likely lead to a disinflationary backdrop, as a more meaningful acceleration seems unlikely as rising affordability concerns may limit house and rental price appreciation.  

Fund performance

The USD Global Growth Fund retreated 4.4% , although better than the Morningstar peer group of a 4.6% decline likely due to a lower equity allocation. Similarly, the Global Balanced Fund fell 3.8%, while the peer group declined 3.7%. Lastly, the Sterling Asset Management Fund declined 3.9%. The downturn across the multi-asset fund range can largely be ascribed to a sell off in both equities and bonds, although we did opt to reduce the beta in the funds during the month.  



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


Ashburton Global Balanced Fund Multi asset fund targeting capital growth within a moderate risk strategy. Learn more
Ashburton Global Growth Fund Multi asset fund targeting capital growth Learn more
Ashburton Sterling Asset Management Feeder Fund Distributing Steady returns through all conditions Learn more