Broad stock and bond markets indices were broadly flat in April but under the surface there continued to be large dispersions between and within markets. After the drama of banking failures in the US in March, concerns over systemic issues ease somewhat in April, although financials continued to underperform. Headline inflation in the UK fell again to 10.1% but remains uncomfortably high, both for consumers and the Bank of England. In an effort to stabilise prices, OPEC announced a production cut of 1.2 million barrels per day, in addition to an earlier pledge of 2.5m, which amounts to nearly 4% of global demand. The news caused oil to surge by over $5, but it subsequently slipped back to end the month close to where it started, at around $80 per barrel, down from a peak of over $120 last June.
Within equities, the FTSE100 rose over 3% in the month, outperforming global equities, despite facing headwinds from a stronger Pound. US equities continued to rally in May, but this was offset by the weakness in the US Dollar. Small companies in the US continued to underperform significantly, as they have done since the collapse of Silicon Valley Bank in March, which poses a threat to the availability of credit. Emerging markets fell, dragged down by weakness in Chinese equities where recovery post COVID re-opening has been more stop-start than some investors had expected.
UK Government bond yields rose in April, resulting in falling gilt prices, driven by stubbornly high inflation and the surprising resilience of the UK economy. Our holding in US TIPS, which are hedged back to Sterling, were much more robust during the month as real yields remained steady.
Diversifying assets and alternatives generated positive returns in a lacklustre month for equities and bonds. Within Diversifying Assets, holdings in both a trend following and the AQR Style Premia fund generated robust absolute performance. In alternatives, UK listed real estate positions bounced as signs of a stabilisation in asset prices emerged, and discounts remain exceptionally wide.
