Monthly Review – December 2022
OUR PERSPECTIVE
Broadly speaking we remain cautious on the outlook for financial markets. We expect inflation to materially decline in the months ahead as demand slumps whilst central bankers continue to raise interest rates for as long as the labour markets hold up. This presents a difficult environment for risk assets, and we believe warrants a cautious approach when allocating capital.
Read more in our Q4 Quarterly Review.
FIXED INCOME
With central banks hiking interest rates at the fastest pace in at least four decades, 2022 saw bond markets generally experience their worst returns on record. The Bloomberg US Aggregate Index fell by 12%, in USD terms, whilst the Sterling Aggregate Index was down as much as 23%, in Sterling terms. Given our inflation expectations and significant amount of debt globally, along with the uncertainty of a looming recession, we remain concerned about credit markets more broadly with a more positive outlook for government bonds.
Our perspective: Neutral / Overweight Government Bonds
EQUITIES
Equity markets struggled as rising interest rates resulted in a continued sell-off in risk assets. Equities globally finished the year down almost 20%. In the US, longer duration growth stocks in particular struggled with some falling by more than 30%, whilst dividend paying, value, stocks were down around 6%, a characteristic seen across markets globally. With a Price-to-Earnings Ratio of 15x against a backdrop of rising interest rates and waning economic growth we remain underweight equities given the outlook.
Our perspective: Underweight
COMMODITIES
After an exceptionally strong start to 2022, primarily due to supply constraints and rising demand, commodity prices finished the second half of the year in a downward trend. Whilst copper and other industrial metals fell and finished 2022 below their starting point, the supply-demand factors mostly affected energy markets. Our outlook for commodities is neutral, particularly for the early part of 2023. However, we are also likely to become progressively more positive on commodities when evidence of the so called ‘Fed pivot’ becomes clearer. For this reason, we remain bullish on gold given our expectations that real rates will turn negative again in 2023.
Our perspective: Neutral / Overweight Gold
REAL ASSETS
Real assets had a year of two halves, starting well, but finishing on a low as the realisation of high property prices, rising interest rates and slowing demand sunk in. We remain underweight property given prices have not corrected enough to reflect the relative rise in interest rates. We remain positive on the long-term outlook for infrastructure, especially in the renewable and digital infrastructure space.
Our perspective: Neutral / Overweight infrastructure
ALTERNATIVES
Our alternatives exposure played a significant role in our strong 2022 performance. Hedge funds generally outperformed weak markets However, it was a year where CTA’s and trend following funds showed their worth. Careful manager selection is imperative, but it is an area that we remain overweight.
Our perspective: Overweight.
CURRENCIES
The US Dollar had a strong start to 2022 given the inflation and interest rate differentials. We suspect the decline in Q4 is a mere consequence of a bear market rally, and believe the Greenback is likely to climb higher again in the first half of 2023 as the Fed continues to hike and uncertainty is likely to rise. That said, the US Dollar remains very expensive relative to other currencies and our currency views generally are relatively balanced.
Our perspective: Neutral
CONTACT US
For further information on any of our services, or if you would like to arrange a meeting with an investment manager to see how we can work with you, please get in touch.
Disclaimer:
We try to ensure that the information provided is correct, but we do not give any express or implied warranty as to its accuracy. We do not accept any liability for errors or omissions. The content of this brochure is for guidance purposes only and does not constitute financial or professional advice.
Important information
Shard Capital Partners LLP is a limited liability partnership, registered in England with registration number OC360394. Shard Capital Partners LLP Registered office: Floor 3, 36-38 Cornhill, London, EC3V 3NG. Shard Capital Partners LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom, reference number 538762.
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.
Disclaimer:
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.
** Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.