January Performance Update

Being an investor can be an emotionally challenging journey. When things are bad, it can feel like they will never get better, and when things are good, we expect them to remain that way. Its human nature to extrapolate recent trends and expect them to continue, and its that exact behaviour that provides great investment opportunities.

Rewind just 4 months and we were sat in September with a huge amount of bad news around. The UK government was in turmoil, equity and bond markets had fallen 20-30% in 9 months, and winter blackouts across Europe seemed inevitable. The reality of those months were very different of course. At that point too much bad news was priced into the narrative, which created a huge host of investment opportunities which we worked hard to take advantage of.

At the time of writing, the investment world feels a lot better than just a few months ago. Inflation numbers are now consistently coming down, and although this week there are more interest rate announcements from the worlds Central Banks, they could very well be the last in this cycle. Economic growth is also holding up better than feared, even in the UK which was tipped for a pretty big recession this year. That’s not to say we are out of the woods yet, but everything we were hoping to see is happening.

On the back of that, 2023 has started well. Depending on the risk profile selected the portfolio range is up between 2.53% (Very Low Risk) and 4.76% (High Risk) in the month of January alone. Both our equity and bond allocations have been good, boosted by less interest rate and inflation fears. It is of course a short period of time to look at, though we hope it illustrates once again that the work we do in difficult markets can make a big difference when things improve.

Looking forward we remain cautiously optimistic. We are expecting further inflation falls as the year progresses, driven by a combination of supply easing, energy costs and a more difficult consumer environment. Interest rates should peak very soon, and then its all about how good or bad economic growth is in 2023.

We won’t know the answer to that until we get there unfortunately, though our base case is a mild recession across Europe, low but positive growth in the US, and a recovery in Asia. That combined with stable policy and falling inflation should be a reasonably supportive environment for investment assets. It’s worth remembering that even if that’s wrong, and things turn out worse, the income yield on the portfolios is still 4-6% per annum. Even just adding that to January’s returns would leave 2023 in a good spot.

Overall, although 2022 was one of the worst years for investment markets in history, it was also one that we believe has set the foundation for better outcomes over the many years ahead. That doesn’t mean there won’t be ups and downs in the future of course, but because assets have moved from very expensive to good value, investors should now be compensated well for taking risk. We will remain vigilant as always, looking to build on a good start to the year where possible.