Reflecting on 2022

As we come to the close of any year, it is good practise to look back and reflect on what has happened over the course of the year, together with what we have (or have not) achieved and try to ensure that we are as prepared as we can be for the year ahead.

There is no doubt 2022 has been a challenging year. Living costs have of course risen substantially -you have to go back to the late 70’s and early 80’s to find the last example of double-digit inflation in the UK, and in the last 20 years there have only been two years where inflation has been above 3% (2008 and 2011). Excluding this year, over the past ten years inflation has averaged 1.79% per annum however, so it’s worth remembering the environment has been favourable in general over the last decade or so. Positively, inflation now looks to have peaked, with the annual rate of year-on-year rate likely to be around 8.5% for 2022, pushing the average for the last 10 years up to 2.37%. In context I think we would all have settled for that at the outset, but the volatility of this year’s spike has been high and challenging. Pleasingly we expect it to be short-lived, subsiding into 2023, quite rapidly from April onwards.

Our investment research this year has had to be particularly rigorous, and our portfolios look completely different to what they did this time last year. The inflation spike created so many price dislocations that whilst capital values have fallen this year, the annualised forward income has risen from 0.9% a year ago, to an average of over 5.5% across our cautious range of funds. This is largely the outcome of a much more favourable bond opportunity set, which after years of offering all the risk for no reward, now offer close to the opposite. Overall, that income stream sets an excellent forward foundation for the medium to long term outlook.

One of the big challenges for 2023 is going to be economic growth. Markets are currently unsure of how ‘soft’ or ‘hard’ a potential recession might be, so we expect the early part of the year to be focused on economic data. That said, there is a lot of negative sentiment for next year already priced into current capital valuations, so with the re-emergence of income in our portfolios there is a good foundation for the next few years ahead, once capital values do pick up.

To support our forward plans, we have grown our team with the aim of improving client outcomes and the quality of what we do. Our numbers have grown to 36 this year with the excellent MLi team joining us over the summer. We have progressive plans to build the team further into next year as we position the business for the next rolling 5-year period. An ongoing objective of ours remains to drive costs down for clients, and we have negotiated a reduction in costs with our main trading platform from January next year and further again when we go through the next milestone of investable assets.

So, despite the challenges, we have a progressive forward view, an excellent team and lots of reasons to be positive. We are as always, nothing without our wonderful clients, so we would like to say a big thank you for all of your support this year. We hope you have enjoyed our blog updates, and we look forward to working hard and building on the foundations created in 2022.

As a bit of an aside, in shaping our portfolios, we do come across fascinating trends – one of which I found particularly interesting and wanted to share. Despite the rapid rise of Amazon, 75% of our shopping still takes place in the ‘real world’, though the shape of those high streets is clearly changing. You will have seen this yourself. Since March 2020, over 800 bank branches in the UK have closed. There are 4,300 fewer clothes shops, while 324 department stores have also vanished. Despite this, other parts of the high street are booming. If you want to get a tattoo, you have 350 more choices than in 2020 (I do hope you didn’t get a ‘Three Lions’ one…). Equally, if you need a festive haircut or a pre-Christmas set of nails, you have an extra 5,100 places to go to!

Wishing you all a very happy Christmas.