Monthly Review – April 2023
OUR PERSPECTIVE
As we write this the announcement came in that JP Morgan will acquire First Republic Bank, in what is the second biggest bank failure in U.S. history. Unprecedented levels of debt, the reach for yield during a decade of ZIRP, and a historically fast pace in the increase in interest rates are starting to show who’s possibly been swimming naked. As the tide of easy money goes out, the question everyone’s asking is who’ll be found to have been swimming without any clothes on?
We remain of the view that the cost-of-living crisis, the boom-and-bust of crypto-mania and the failure of now four US regional banks, are all either direct or indirect outcomes of fiscal and monetary policies over the last decade. Furthermore, halfway through Q1 earnings season, and corporate profits continue to slow as higher prices and rising cost of capital is putting pressure on corporate margins. Financial conditions have tightened sufficiently to turn the policy-induced post-pandemic boom into a deflationary bust; we currently see a 55% probability of a ‘deflationary bust’ in our factor quadrant.
Whilst inflation continues to slow, it’s perhaps not slowing quick enough to bring about a change of course from central banks. This is how economic downturns start: forcing solutions to latent problems from the past.
EQUITIES
Despite relatively weak corporate profits, equity markets had a strong start to Q2, led by value indices, as regions like the UK, Europe and Japan outperformed. Energy and financials led the sector split, as fears of a global banking crises following the SVB debacle were swiftly brushed aside. Large cap tech has also had another good month, in an AI-driven April reporting season!
FIXED INCOME
Yield curves across developed markets rose marginally across the curve as the possibility of central bank pivots got pushed further into the future. Notwithstanding credit markets were relatively strong over the month. Given our views on inflation, we retain exposure primarily towards nominal bonds, but we also have some shorter duration inflation linked bonds given the uncertain outlook. With regards to credit markets, we do not believe markets are pricing risk efficiently, and remain underweight credit.
REAL ASSETS
Fears
of a commercial property crises continue to rise, and we share much of the concerns highlighted in financial media. Whilst we’re not expecting anything like the GFC, we remain underweight property given prices do not reflect the significant re-pricing of interest rates and of weakening demand. We retain conviction in the infrastructure space, especially in the renewable and digital infrastructure.
Within the commodity complex, whilst positive on the longer-term trends, the near term the risk of an economic downturn could put further pressure on already weak commodity prices, and we remain underweight. However, we continue to retain a significant overweight position in Gold.
SPECIALIST STRATEGIES
Specialist strategies continue to play a significant stabilising role within our portfolios. Managed futures had a solid recovery following a relatively difficult March and our market neutral exposures continue to deliver solid results. We retain limited Private Equity exposure, but those positions we do own had a very strong April.
CURRENCIES
Generally, we remain neutral on currencies. On the margin we note that whilst inflation and interest rate differentials would support a stronger USD, the marginal change is arguably against the Dollar and positive for the EUR and GBP. We remain positive on the Japanese Yen, which we believe is both undervalued and under-owned, with potential catalysts for a revaluation higher.
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.
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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.
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