Market volatility picked up in August as some crowded macro trades unwound rapidly triggered by signs that the labour market in the US is softening. Equity volatility, as measured by the VIX index, rose to 38 at the start of the month, and during a period of frantic trading, Japanese equities dropped over 20% before recovering some of this loss. At the Jackson Hole conference, Federal Reserve Chair Powell signalled that the Fed intended to cut policy rates at its September stating that: `The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.`
Despite these dramatic moves, global equity ended the month broadly unchanged in sterling terms, as markets recovered much of the early losses. Within Equities, the holding in the Pacific North American Opportunities fund outperformed due to strong stock selection and by having no exposure to the Magnificent Seven stocks that sold off in August.
Fixed income markets were positive in July and provided a diversifying effect against the volatility seen in equity markets. Holdings in US inflation linked government bonds rallied over the course of the month. A position in Asian High Yield was sold over the course of the month, having rallied over 15% since inception of the trade in November 2023.
Within Alternatives, a small position in broad commodities was exited, on signs that the global demand for commodities is weakening, whilst the risks of inflation are falling.
Diversifying asset performance was mixed, as momentum-based strategies were weaker, but a holding in the Japanese yen once again rallied and added value, as the carry trade, where investors had previously sold the yen to buy higher yielding currencies, unwound.
