Stock and bond markets had a very strong start to the year, with global equities rising over 7% in sterling terms. This was in response to some signs of improving data across several factors globally. The relatively mild winter in Europe helped reduce the risk of a winter recession, as gas storage was depleted less than expected, lowering electricity costs. Further, positive news from China, which reopened its economy and moved away from the COVID-zero policy that stifled growth for much of 2022 was a positive for global growth. Finally, recent inflation prints have come in at around expectations, with US CPI at 6.5% year-on-year, down from 7.1% the month prior and a peak of over 9%. This was taken by the market to mean that inflation is finally starting to fall as a result of central bank policies – which also caused yields to fall across bond markets.
Within equities, our holding in a Battery ETF was strong performer over the month. It invests across the battery value chain, batteries being vital for energy storage as economies decarbonise in years to come. Also, a holding in Schroders Global Sustainable Value performed strongly, which has strong sustainable credentials but a strict valuation approach to investment.
Within Fixed Income – returns were strong across markets as yields fell, in part because inflation data appeared to have peaked across many western economies. Our positions in US and UK Inflation linked bonds rallied as a result.
Within Alternatives, our allocation to diversified UK REITs added value, as they benefitted from a broader rally of risk assets and falling bond yields. We think discounts to NAV, where share prices are pricing below the value of the assets within the vehicles in this space compensate for their interest rate sensitivity. A holding in Carbon Futures was up nearly 10% in GBP terms. These contracts are bought by emitters of carbon to cap the total emissions the EU allows, which decreases annually.
