Markets rallied in July, continuing the trend set through Q2. In the US, a string of stronger than expected data helped to fuel this positive risk sentiment, with GDP surprising to the upside, driven primarily by strong consumer numbers. This, combined with inflation in the UK surprising to the downside led markets to continue to price an economic ‘soft landing’, where economies are not tipped into recession due to central bank rate hiking cycles. The Federal Reserve resumed hiking rates in July, increasing interest rates by 25bps, which was in line with market expectations. Fed chair Powell emphasised that the task of the Fed now was to be data-dependent, as to whether interest rates would have to rise further.
Equities rallied strongly, with global equities in GBP returning 2.4% over the month. Dispersion amongst regions within equities was low over the month, as most regions benefitted from the positive economic surprises from the US. The strongest returns for sterling investors were in EM, and our holding in Pacific North of South continued its run of generating positive absolute returns.
Fixed income was also positive over the course of the month, as lower than expected inflation numbers led to yields moving lower. Our holding in sterling corporate and government bonds generated positive returns over the course of the month.
Within Alternatives, holdings in UK REITS, which trade at historic discounts to NAV also benefitted from this positive inflation news, with several of our holdings up over 7%. We continue to believe this sector offers value given the discounts on offer and also the conservative approach to leverage within the sector.
