Q1 2022 Investment Summary

29/03/2022

Unsurprisingly, much of this years news content touches on the impact of Russia’s invasion of Ukraine, a tragic development which has untold human and financial consequences. Financially, the crisis is set to put continued inflationary pressure onto central banks, who find themselves faced with probably the most challenging test of their mandates since the 1970s.

Before going through the financials, here is a thought provoking poem from Brian Bilston, titled Refugees:

They have no need of our help
So do not tell me
These haggard faces could belong to you or me
Should life have dealt a different hand
We need to see them for who they really are
Chancers and scroungers
Layabouts and loungers
With bombs up their sleeves
Cut-throats and thieves
They are not
Welcome here
We should make them
Go back to where they came from
They cannot
Share our food
Share our homes
Share our countries
Instead let us
Build a wall to keep them out
It is not okay to say
These are people just like us
A place should only belong to those who are born there
Do not be so stupid to think that
The world can be looked at another way.

(now read from bottom to top)

Shifting Sands

You should just buy <insert company or regional stock market here> and be done with it, has been a common refrain.

Most recently, the US has been the topic of that conversation, having outperformed other markets spectacularly over the past decade-plus. Recent events have shown the benefit of not only asset class, geographical and sector based diversification but also stylistically diversified portfolios.

Amongst all the uncertainty, inflation remaining a challenge for central banks is a given.

Based on a combination of management styles designed to offset each other throughout differing economic backdrops, we are confident that our client portfolios are behaving as expected, albeit in a challenging environment.

How much of one global market is too much? There is no easy answer; investors who want to match the market end up experiencing all of these highs and lows.

Some argue for an equally weighted regional approach, which through history has nearly kept pace with the market-cap weighting, but which has experienced a brutal decade as the US came back into favour. Domestic US investors surely have the easiest call – eschew a tempting home bias that could see equity portfolios weighted at over 60% to the US, maintaining better diversification and risk profiles.

Russian exposure update

We've already seen active managers proving their worth, with one Emerging Market Equity fund reducing their Russian Equity exposure from 15.90% at the end of December to just 1.20% by the end of February.

Some remaining strategies with Russian exposure are listed below:

• Hermes Absolute Return Credit: The manager has exited all their direct holdings in Russia with the exception of a small position (c.1bps) in Sberbank which has not been sold yet due to market illiquidity.
• GQG Emerging Markets: The manager has reduced their exposure to Russian securities to c.1.20% as of the end of February. We are monitoring this and are comfortable with how they are managing the situation.
• Schroders Global Recovery: Schroders have minimal exposure to Russia within the Global Recovery fund at 0.21%. The manager has stated that they will continue to monitor the situation as it develops.
• PineBridge Global Dynamic Asset Allocation: The fund had insignificant direct exposure (<0.1%) to Russia/Ukraine as of 31st January 2022. Not all securities can be sold at present and PineBridge has banned the purchase of any Russian securities while the Putin regime continues.
• Artemis Global Emerging Markets: Russian securities made up ~5% of the fund’s assets prior to the invasion. These have since been written down to zero value and Artemis have restricted any incremental investment in Russian securities going forward. With regards to exiting the positions (when possible), Artemis state that any decisions on trading are always considered in light of fundamental prospects for their companies and the prevailing market sentiment and liquidity environment we are in. Given all securities held in Russia are currently suspended, Artemis are restricted from taking any further actions currently, but will continue to monitor developments as they evolve.

Manager research update

This month, Redington's Investment Strategy Committee approved an event-driven Preferred List. We believe such funds are a good diversifier to both equity and credit and are exploring the potential benefit of adding these to our portfolios.

As ever, work continues in a number of areas, including passive climate equity, impact private credit, natural capital and global government bonds.

Overall summary

While the world is certainly going through a period of change, we are reminded that historically time in markets rather than timing markets provides the best success in the long run.

With the unique support of the largest independent investment consultancy business in the UK, we are comfortable with the current portfolio balances but will continue working to explore ways of refining both diversification across strategies and style concentration within strategies.