Our first meeting in 2023 happened a bit later than expected, but the timing provided a good opportunity to review the first quarter of 2023 and the global markets.

Since the start of the year there has been positive news for equity markets, which was reflected well in our more equity orientated portfolios. The recovery of growth stocks accounted for a large part of the positive returns, regaining some ground, having experienced a tough year in 2022.

A combination of high inflation and rising interest rates is still having a significant impact on bond prices and their yields. However investor sentiment has improved and there are positive signs that inflation is slowing, or levelling in many countries. Enough economists have had their fingers burnt in attempting to predict the future for us to know not to take anything for granted, as the saying goes ‘one swallow does not a summer make’.

Central banks around the world continue raising their base rates in an attempt to curb inflation (we are all feeling it). This is having a major impact on borrowers, both businesses and individuals, and consequently the wider economy including employment. It is likely that we are only now starting to feel some of the effects of these decisions working their way through to the market.

The US dollar was 2022’s best performing currency amidst rising US interest rates and global challenges around growth. However, since the final quarter of 2022 it has faced a steady decline which no doubt helped the US export market.

The US stock market account for more than half of the global market capitalisation and for our portfolios a strong dollar has sheltered the funds from the worst of the downsides in the market throughout 2022.

In summary, we have seen a bounce from a torrid 2022, but are still not home free. Volatility remains noticeable, but our portfolios have performed well in relation to the market and the benchmark:

Magus Sustainable 100% Growth
8.21% year on year against the AFI Aggressive benchmark of 2.46%
5.51% from 1st January against AFI Aggressive benchmark of 1.17%

Magus Sustainable 60% Growth
5.69% year on year against the AFI Balanced benchmark of 1.47%
4.65% from 1st January against AFI Balanced benchmark of 0.66%

The returns shown above are after the ongoing charges of all funds and do not take into account advice or platform fees.

Growth stocks have contributed well to the portfolios, and it is not unusual for them to beat value in short-term time frames. The evidence and research still shows that value delivers superior returns over the long term and we feel confident in maintaining the status quo in the equity allocation sector.

Our fixed interest proposition of Investment Grade quality holdings with relatively short overall duration has performed in line with our expectations, if not slightly better. Bonds are not easy to manage and carry different types of risk to equities. They can be as volatile as equities (2022 was a very good example of this) if not managed carefully.

Investors choose their portfolios based on balancing expected returns vs volatility risk and expect to be rewarded for taking on higher risk with higher returns over the long term. Following the same logic, when trying to manage risk, it is important that your fixed income is structured sensibly to actually offset the volatility of holding equities. It would make little sense for a balanced investor to have a portfolio which has the same, or similar, level of risk to an equity portfolio, yet with a much lower expected return.

One more thing – no one calls it a global recession anymore, something that was imminent according to 1,000s of “investment gurus” only a few months ago. We have now apparently entered a bull market.

Risk warnings
This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.


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