2022 has not been a good year at all for investors, unless you are heavily invested in utility companies, oil companies or the arms trade. All other areas of the market have suffered, which is reflected in performances across all portfolios that IronBright manages, and we still have a few more months to run before the end of the year.
Whilst we expect volatility in the equity markets from time to time, we do not expect to see the excitement that we have seen in the bond markets of late. The bond market, usually the “defensive” element of any portfolio, has been the main downside contributor in the portfolios.
As an asset class bonds across the world have felt the full brunt of interest rate rises and soaring inflation, with the recent sell off in the UK bond market not helping matters; this, the result of its unfavourable reaction to the UK government’s recent ‘mini-Budget’ and the slow movement of central banks (US FED, ECB and BoE) to raise interest rates at the end of 2021.
We have witnessed some recent stability in government and corporate debt (and indeed the UK equity market as a whole) now that Jeremy Hunt overturned the multibillion-pound unfunded tax cuts of his predecessor.
We are therefore experiencing a rare development in markets, which occurs when both the growth/equity and defensive elements of the portfolio are adversely affected at the same time for a combination of reasons.
While this shift in market sentiment has hit some of the funds held by the portfolio quite badly, we continue to believe in the long-term prospects of these funds and see no reason to change course at this stage, as the longer-term performance remains in line with expectations.
This is not to say that we are comfortable with current valuations; whilst some years are not good at all, this one is a bit of a stinker.
However, we have seen it all before and the market is definitely cheap, the only question is how much cheaper it gets before we recover. I suspect rates will start to come down earlier than most people currently expect (Q2 next year), and the market will start to anticipate this before it happens.
There is certainly a lot of bad news priced into the market at present and we will recover eventually. I suspect it will be prompted by a flurry of takeovers from the US given the strength of the US dollar and the low level of UK valuations.
The following table is a useful reminder that context is important. 8 out of the last 10 years (including the current year) reflect positive returns from our IronBright 50 and IronBright 70 portfolios, where most clients are invested.
We intend to stick with the investment disciplines that have stood us in good stead and ride this one out:
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