The Planning Team

3rd March, 2023

Blog, IC Insights

February Portfolio Review

After a strong January on the back of falling inflation expectations, markets calmed down in February, realising that the path to peak interest rates and lower inflation might not be a straight one. Ironically, what has taken the froth off the January performance has been stronger than expected economic data across the globe. The rationale being, that stronger growth leads to rising wages and this in turn fuels inflation leading to Governments around the world continuing to raise interest rates. The reality of course, is that we would like something in the middle, and February’s data suggests this outcome has increased in probability.

What appears clear is that inflation will continue its downward trajectory, at least for the next 5-6 months in most regions, and that interest rates will peak over the coming months, certainly in the first half of this year. If, against this backdrop, major economies can avoid a recession and maintain a balance of controlled inflation through low to moderate interest rates, then that becomes a very good environment for investment assets.

So, markets have been cautious in February in comparison to the optimism witnessed in January. This feels about right given the uncertainty as to which way this inflation / interest rate game might play out. That said, from a performance perspective, we would have taken our return numbers to the end of February at the start of the year. Portfolios were around flat in February, leaving the year-to-date numbers between 2.11% (Low Risk) and 5.18% (High Risk) respectively.

Taking a slightly wider perspective, although 2022 was the worst year for investment markets for 15 years, the resulting volatility is something we have historically managed very well. The success in managing volatility is how well you can reposition portfolios in difficult periods. The idea is by taking advantage of the investment opportunities created in times of volatility, when markets recover, the portfolios really benefit. To that end we are pleased with the journey delivered since the bottom of the market on 12th October, and look forward to building on that over the months and years ahead:

Looking forward, we remain cautiously optimistic, mostly reassured by the continued high levels of income the portfolios are providing. If things simply move sideways over the next 10 months to the year end, we should pick up a further 6% income from low-risk portfolios (not in a straight line), though depending on the data over the coming months it is conceivable, from this point, that we might also receive some strong capital upside in addition. If that is delayed, the income yield will continue for longer. Patience, as ever, is the key to unlocking the opportunity.