Financial markets have spent the last eighteen months looking over their shoulder for new and potentially more dangerous Covid variants. The arrival of the more transmissible Omicron in late November initially looked like it may herald what many had feared. Governments responded by putting in place restrictions and activity sagged. Yet despite soaring infection rates and a pick-up in hospitalisations, deaths have remained low. Investors interpreted this as the ‘market clearing event’ that facilitates the transition to a more normalised environment. Equity markets rebounded and made new all-time highs. The fund returned 6.2% versus the MSCI Europe Index that returned 4.1%

The minutes of the December Federal Reserve Board showed participants believed that higher inflation and a tight labour market could necessitate lifting short-term rates “sooner or at a faster pace than participants had earlier anticipated.” Officials also now expect to end the expansion of the Fed’s balance sheet in March. The practical impact of these moves is limited but the ‘signalling’ effect is more significant and has driven a sharp rotation out of ‘growth’ stocks into ‘value’. Despite the initial intra market volatility, monetary conditions are not about to dramatically tighten. Investors will, however, need to navigate the transition from a liquidity driven bull market to one driven by earnings. Volatility has increased and the recent sector rotation will likely continue. But with a strong underlying global economy and significantly negative real interest rates the equity bull market is intact. The fund adopts a ‘value’ approach to investing and the ongoing rotation away from ‘growth’ has been beneficial. In line with this approach the fund has significant exposure to the UK market which trades at a material discount to other developed equity markets.

The emerging consensus that Omicron, while more transmissible, is considerably less virulent positively impacted numerous sectors. Increased confidence in the economic outlook drove a recovery in cyclical stocks, benefitting Smurfit Kappa and Rexel. Travel related stocks rebounded strongly as confidence grew that the worst of any Covid disruption was behind us. Alpha Financial Consulting sustained its outperformance post its very well received interims. Uniphar gained as it announced three small acquisitions that led to analysts nudging up their profit forecasts. Despite the very strong performance from both stocks over the last twelve months further upside remains. One Savings Bank and Axa outperformed as financials benefitted from a steepening in the yield curve.

Synthomer was the largest detractor from performance. The shares slumped as brokers raised concerns over the outlook for the synthetic rubber glove market. We believe a more regular market is already factored into market expectations but unfortunately this will only become apparent with time. Even if conditions prove to be weaker than anticipated, the company is more diversified than it has been in the past and the valuation attractive. A number of smaller holdings drifted on little news flow.

There was limited trading activity.

Financial markets have spent the last eighteen months looking over their shoulder for new and potentially more dangerous Covid variants. The arrival of the more transmissible Omicron in late November initially looked like it may herald what many had feared. Governments responded by putting in place restrictions and activity sagged. Yet despite soaring infection rates and a pick-up in hospitalisations, deaths have remained low. Investors interpreted this as the ‘market clearing event’ that facilitates the transition to a more normalised environment. Equity markets rebounded and made new all-time highs. The fund returned 6.2% versus the MSCI Europe Index that returned 4.1%

The minutes of the December Federal Reserve Board showed participants believed that higher inflation and a tight labour market could necessitate lifting short-term rates “sooner or at a faster pace than participants had earlier anticipated.” Officials also now expect to end the expansion of the Fed’s balance sheet in March. The practical impact of these moves is limited but the ‘signalling’ effect is more significant and has driven a sharp rotation out of ‘growth’ stocks into ‘value’. Despite the initial intra market volatility, monetary conditions are not about to dramatically tighten. Investors will, however, need to navigate the transition from a liquidity driven bull market to one driven by earnings. Volatility has increased and the recent sector rotation will likely continue. But with a strong underlying global economy and significantly negative real interest rates the equity bull market is intact. The fund adopts a ‘value’ approach to investing and the ongoing rotation away from ‘growth’ has been beneficial. In line with this approach the fund has significant exposure to the UK market which trades at a material discount to other developed equity markets.

The emerging consensus that Omicron, while more transmissible, is considerably less virulent positively impacted numerous sectors. Increased confidence in the economic outlook drove a recovery in cyclical stocks, benefitting Smurfit Kappa and Rexel. Travel related stocks rebounded strongly as confidence grew that the worst of any Covid disruption was behind us. Alpha Financial Consulting sustained its outperformance post its very well received interims. Uniphar gained as it announced three small acquisitions that led to analysts nudging up their profit forecasts. Despite the very strong performance from both stocks over the last twelve months further upside remains. One Savings Bank and Axa outperformed as financials benefitted from a steepening in the yield curve.

Synthomer was the largest detractor from performance. The shares slumped as brokers raised concerns over the outlook for the synthetic rubber glove market. We believe a more regular market is already factored into market expectations but unfortunately this will only become apparent with time. Even if conditions prove to be weaker than anticipated, the company is more diversified than it has been in the past and the valuation attractive. A number of smaller holdings drifted on little news flow.

There was limited trading activity.