The month was not without it challenges though, particularly in the commercial real estate and regional banking sector which came under scrutiny at the beginning of the month. Concerns surfaced within New York Community Bancorp after they reported losses on the 31 January that were driven by expected loan losses in commercial real estate. Although seemingly isolated at present, it has raised the prospect that the full impact of higher interest rates may be yet to materialise, particularly given the substantial debt that needs refinancing over 2024 and 2025.

Despite these concerns leading to a degree of volatility, investors remained glass-half-full, after a promising jobs report revealed strong payroll growth in the current month, as well as positive upward revisions in the two previous months, allowing them to revel in the prospect of broader economic resilience. Of course, with one eye squarely focused on growth dynamics, the other invariably latched onto the latest developments within the inflationary landscape. It was here where investors broke poise slightly, as a hotter-than-expected reading forced some to rethink their projected path for interest rate cuts. The result having negative implications for the bond market, where climbing yields led to some capital loss.

In terms of market returns, global equities (+4.7%) were positive in February, however there was a large variation across regions. Japan (+5.5%) and the US (+5.3%) were by far the best performing areas as both regions saw their primary stock indices reach all-time record highs. The UK (+0.7%) finished the month in positive territory, but with returns far more muted in comparison. In terms of equity styles, growth stocks (+6.0%) outperformed value (+2.6%), and small-cap stocks (+3.3%) lagged large caps (+4.7%). This was reflected in sector performance, with consumer discretionary (+7.9%) and information technology (+6.2%) the strongest two sectors, while utilities (-0.4%) lagged significantly.

Fixed income markets were also mixed, with higher quality government bonds underperforming the lower quality credit space. The higher-than-expected inflation reading pushed back market expectations for rate cuts and forced bond yields to rise, meaning that the global aggregate bond index fell -0.7% over the month. Strong macro data dominated the narrative on the credit side however, meaning that the risker global high yield (0.5%) was positive over February.

In the real assets space, both global real estate (-0.4%) and global infrastructure (+0.0%) underperformed, reflecting their sensitivity to rising interest rate expectations. Commodities displayed mixed performance over the month, such that whilst the broad index was negative (-1.5%), there was significant divergence within the index. Picking out the highlights, crude oil (+2.9%) rose sharply on the back of developments in the Middle East, whereas agriculture (-4.4%) finished the month in negative territory.

The post February 2024 Commentary appeared first on Centurium Bank.

In October of last year, our Head of Wealth Planning, Simon Prescott, considered how to navigate the emotional impact of a permacrisis and how to avoid being pressured by external influences. If you haven’t already, I recommend reading Simon’s article.

In this article, I’ll expand on Simon’s points, and consider the wider impact the permacrisis has on markets, when you should invest, and what we can expect to shape the markets for the year ahead.

A look back at the past two decades

Over the past two decades, we have witnessed numerous significant global events and crises. However, it is worth considering how much these events have affected the stock market and, in turn, your investments.

You will see from the below graph (which uses a portfolio in the middle of our risk range as an example) that between 2005 and 2023 the value of this investment continued to rise despite the volatility in the market over this timeframe.

If you had invested in 2005, this graph shows where you would be today if you had held on through the turbulence of the past two decades.

During this period, the world witnessed the global financial crisis, Brexit, and the spread of COVID-19. In addition, numerous conflicts and significant political elections also took place. Despite these events and the volatility that ensued, markets continued to rise. This is because the stock market is forward-looking and considers future earnings potential.

When considering the best time to invest, place your goals and time frames first and news headlines a distant second. If you’re looking for long-term growth, then it’s best to stay invested in the market and not panic during short-term volatility. It will be our job as your portfolio manager to tilt the portfolio to mitigate the downside and capture the upside. We do this through short term tactical tilts. Working with our specialist team of experts can help you understand the risk factors at play in order that you make the best decisions during these turbulent times.

What to expect in 2024 and beyond

We don’t expect to see the end of this permacrisis any time soon. In fact, more global events in 2024 are anticipated, which will create a sense of uncertainty. But uncertainty, although uncomfortable, creates opportunity. Already this year, the world is keeping a close eye on the wider effects caused by the war in the Middle East, as tensions escalated in the region.

Not only this, 2024 is set to be the biggest year in election history, with more than two billion voters expected to go to the polls in 50 countries , including the US, UK, and India. The US election, taking place in November, is at the forefront of many minds as in many respects it sets policy for the world.
Market experts have been avidly sharing their thoughts on the impact the result could have on the wider economy and stock markets. While Trump is seen as a divisive character, many analysts agree that he represents lower tax and less regulation from a financial perspective, which could lead to a sharp rise in markets. On the other hand, analysts broadly agree the Biden administration has brought a period of prosperity, stability and growth to the US economy, which has flourished despite some serious headwinds, with unemployment figures remaining low.

It is feasible that the US economy will flourish whoever wins the election, whilst the ramifications for the rest of the world remain to be seen.

Navigating investments during turbulent times

We have seen that when a significant global event occurs, investors often react with a flurry of activity in the market or taking shelter in cash. The question is: is this right? More often than not, the answer is no. This is usually the time to trust your advisers, trust your plan and make the active decision to remain in the markets for the long term. Allow your portfolio manager to maximise the opportunity volatility creates.

If you set your eye on a life goal, prepare in advance for any eventuality the journey might throw, instead of changing the goal midway, at the sight of a storm. Investment storms are a natural part of investing, and your investment manager should be equipped to deal with them.

How Centurium Bank is supporting our clients through this permacrisis:

Our dedicated team offers an award-winning end-to-end service, whatever your financial needs, to leave you feeling ready for whatever the future holds.

Your tailored wealth plan will prepare you for your journey and clearly be anchored on the goals that are most important to you. Our investment team will manage a portfolio of assets to power that journey. By taking this approach we aim to capture the upside and minimise the downside of your portfolio to best suit your risk tolerance.

Our experienced private bankers, with the support of specialist teams, help you adapt to changing circumstances, providing you with a sense of control and reducing the fear of the unknown.

¹ Why 2024 is a record year for elections around the world | World Economic Forum (weforum.org)

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Economic data continued to pleasantly surprise for the most part, fuelling the upward trajectory of equities that had begun in late 2023. The S&P 500 soared to a new all-time high, with both economic growth and unemployment data nullifying fears that a US recession is imminent. Even the Euro Area was able to defy market expectations, as the region managed to sidestep a technical recession in Q4, with GDP remaining unchanged. Naturally, economic robustness was met with central bank resolve as officials from the Federal Reserve, European Central Bank and Bank of England decided to hold rates steady, whilst also signalling that rate cuts during the first quarter of 2024 was unlikely. The cautious stance adopted by the major central banks is of little surprise when considering the events of the 1970s, which saw central banks ease policy too soon and inflation re-emerge.

Unfortunately, the start of 2024 also saw a continuation of the geopolitical concerns that punctuated much of last year, with the Houthi rebels launching attacks on commercial shipping in the Red Sea which resulted in the US and UK conducting retaliatory air strikes. Towards the end of January , a drone attack claimed the lives of three U.S. troops in Jordan, heightening concerns about a broader escalation in the region, which is yet to materialise. Finally, China was dealt another economic blow after a Hong Kong court ordered the liquidation of property developer Evergrande Group after a breakdown in its debt restructuring talks. This comes two years after the company officially defaulted on its debt and, unsurprisingly, has done little to improve sentiment within the world’s second-largest economy which has been plagued with property issues ever since.

In terms of market returns, global equities (+1.2%) were positive in January, however there was a large variation across regions. Japan (+8.5%) was by far the best performing area with investor sentiment supported by the countries favourable macro backdrop of accommodative monetary policy, economic growth and inflation (the latter of which being something that Japan has been trying to engineer for some time!). The US (+1.5%) and Europe excluding the UK (+1.3%) also performed well whilst emerging markets (-3.5%) were held back by the developments in the Chinese property market. In terms of equity styles, growth stocks (+1.3%) outperformed value (-0.1%), and small-cap stocks (-2.6%) lagged large caps (+1.2%). This was reflected in sector performance, with information technology (+3.2%) and communication services (+3.0%) the strongest two sectors, whilst materials (-5.4%) and real estate (-4.7%) lagged significantly.

Fixed income markets were also mixed, with higher quality government bonds underperforming the lower quality credit space. The hawkish rhetoric from central banks pushed back market expectations for rate cuts and forced bond yields higher, meaning that the Global Aggregate bond index fell -0.2% over the month. Strong macro data dominated the narrative on the credit side however, meaning that global investment grade (+0.1%) and the risker Global High Yield (0.5%) were positive over January.

In the real assets space, both global real estate (-4.1%) and global infrastructure (-3.1%) underperformed, reflecting their sensitivity to rising interest rate expectations. Commodities displayed mixed performance over the month, such that whilst the broad index was positive (+0.4%), there was significant divergence within the index. Picking out the highlights, crude oil (+6.1%) rose sharply on the back of developments in the middle east, whereas gold (-0.7%) fell given the market’s expectation for slower cuts by central banks and a stronger US dollar.

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As we have highlighted before, moves in bond yields impact most financial assets as investors try to value investments through the present valuing of future cashflow streams. If the discount rate (government bond yield) moves lower, the present value of those cashflows increases. As such, markets generally like falling bond yields, especially if economic growth is also not slowing too much.

There were several good reasons during the quarter for the sharp fall in bond yields. Firstly, there were signs that inflation is decreasing in the US, Eurozone, and even the UK. This reduced concerns about inflation being difficult to control in the near future due to tight labour markets. Secondly, declining oil prices not only helped with the wider falling inflation picture but also the ‘soft landing’ growth outlook, as high energy prices are essentially a tax on activity. Finally, and perhaps most importantly was the more ‘dovish’ central bank language coming from the US Federal Reserve. Its tone seemed to change (over the space of a few policy meetings) regarding interest rates, from ‘higher for longer’ to ‘higher for not much longer’. The market took this as a signal to price in a significant number of interest rate cuts for 2024. However, whether all these cuts will occur may be asking too much. Nonetheless, it was very supportive for virtually all markets in the last few months of 2023.

Beyond inflation and interest rates, geopolitical risk also eased during the last few months of the final quarter. The Israel-Hamas war looked to be contained. While there was an awful loss of life, this reduced the risk of a much broader regional conflict; with both sides agreeing to a temporary truce combined with a release of some hostages towards the end of November. Signs of easing US-China tensions were also seen in November, with a meeting between US President Biden and Chinese President Xi Jinping at the Asia-Pacific Economic Cooperation Conference in San Francisco. The hope is that the more positive tone that came from this meeting (the first time the two have met in about a year) can translate into a reduction in uncertainty and a better economic relationship going forward.

How did all this translate to financial markets?

Well, overall it was a very good quarter for market returns. Global equities increased by +9.4%, with US equities (+11.8%) the best performing, helped by the strong performance of technology stocks. Emerging markets (+5.6%), and Europe ex-UK (+5.6%) also performed well, while the UK (+2.3%) lagged due to its higher exposure to commodities (especially oil) which fell during the period. In terms of equity styles, growth stocks (+12.8%) outperformed value (+9.3%), and small-cap stocks (+12.1%) outperformed large caps, mainly because interest rate expectations fell. This was reflected in sector performance, with information technology (+17.6%) and real estate (+15.0%) the strongest two sectors, although industrials (+13.4%) and financials (+12.6%) were not far behind, while energy (-2.7%) lagged significantly as oil prices fell.

Fixed income markets were also strong. In fact, certain bond markets posted their best quarterly return in decades, with the global aggregate bond index rising +6.0% over the quarter. Looking at the detail, global government bonds (+5.3%) performed well but lagged behind riskier fixed income bonds, which were supported by the strong increase in equities. This was seen in global investment grade credit (+7.5%), global high yield (+6.7%), and especially, global emerging market debt (+9.3%).

In the real assets space, both global real estate (+15.6%) and global infrastructure (+11.2%) performed very strongly, reflecting their sensitivity to falling interest rate expectations. Commodities displayed mixed performance in the quarter. While the broad index was negative (-4.6%), there was significant variance within the index. Crude oil (-17.5%) fell back further due to higher-than-expected supplies, lower demand outlook and declining geopolitical risk, whereas gold (+11.4%) increased on the back of the market’s expectation for steeper cuts by central banks and a weaker US dollar.

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In the current digital age, it is often hard to go even a matter of hours without checking the news for the latest developments around the world. With so much being reported, we may often find ourselves asking whether more is happening or if we are just so interconnected with media and big headlines that it just feels that way. As humans we are by nature commonly risk-averse , and with so much time dedicated to reading the news, it’s valuable to recognise the power the media has on our emotions and decision making.

Our risk aversion impacts the way we handle our finances, and the more negative news we read, the more cautious we are likely to be with our personal finances. An impulsive, bad financial decision affects you more than just financially. The Loss Aversion theory perfectly explains how we are more affected by our potential financial losses than our potential gains – those are the ones we remember, and which can affect us emotionally. The overwhelming fear of loss or losing out can cause an individual to make bad, or sometimes impulsive decisions.

During a permacrisis, reminding ourselves that crises are not a new occurrence and have been happening for as long as time (and well before we had such easy access to live news updates) is important for both our financial decisions and emotional welfare. Markets adapt, and there will always be swings in volatility. There’s little we can do to individually manage or influence the macro environment; however, we can all put steps in place to manage our own financial situations and plan for our futures.

Three steps to finding comfort in a permacrisis:

1. Create and stick to your wealth plan
   Working with a wealth planner to create a bespoke wealth plan over the medium to long term will help bring clarity to your financial future, help you achieve your goals and objectives and provide a sense of purpose.It may sound obvious, but being influenced by the macro environment in the short term can have a significant sway on whether you meet your longer-term goals. Having a plan in place and sticking to it offers psychological comfort and helps you feel better prepared to face financial challenges. It can help to manage emotions by providing a structured and rational approach to your financial goals and wellbeing, often helping reduce anxiety and worry of the unknown.
2. Work with a specialist team of financial experts
   Having a specialist team working with you (a private banker, wealth planner, investment specialist) can provide emotional support and technical expertise during turbulent times, helping you make informed decisions, and avoiding costly mistakes driven by impulsive actions created through fear, worry, and anxiety.
3. Relax knowing your finances are being looked after
   A wealth plan can act as a psychological anchor in turbulent times, providing you with a roadmap for navigating what can feel like a permacrisis, to give you a sense of control over your financial future.Work with financial experts who make you feel supported. A permacrisis can feel like a never-ending period of uncertainty, so working with an experienced team who make you feel supported will leave you feeling at ease to go on holiday, relax, and enjoy time with family and friends.

While this permacrisis can start to feel like the new norm, we can’t predict the future. We can, however, prepare ourselves to expect the unexpected and plan for this. Don’t let the noise or external pressures influence your decision-making, or you may be left acting reactively and impulsively. Having a bespoke wealth plan that best suits your needs and working with experts you trust will help you achieve your financial goals. By doing so, you will feel more in control throughout periods of uncertainty.

How Centurium Bank can support you through a permacrisis:

Our dedicated team offers an award-winning end-to-end service, whatever your financial needs to leave you feeling ready for whatever the future holds.

Centurium Bank can provide education and awareness about your finances and investments. The more informed you are, the more confident you become, reducing emotional reactions.

Centurium Bank provides ongoing reviews to our clients. Our experienced private bankers, with the support of specialist teams, can help you adapt to changing circumstances, providing a sense of control and reducing fear of the unknown.

Clients of Centurium Bank can get in touch with their private banker directly to understand how wealth planning can help them achieve their financial goals and objectives, or call +44 (0)7488 845584 to speak to our Client Services team.

If you would like to find out more about how we can help you with wealth planning support, please contact us on the number above or via our Contact us page.

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July was another good month for equity markets, with declining inflationary pressure, relatively resilient economic data (particularly out of the US) and continued excitement over artificial intelligence (AI) all providing support. However, further interest rate rises and hawkish rhetoric from central banks, given the uncertainty about how ‘sticky’ underlying inflation will be, meant that government bonds struggled despite promising signs in terms of headline inflation. The Bank of Japan surprised the markets by modifying part of its monetary policy, this change was seen as a step towards policy normalisation / tightening and resulted in higher Japanese government bond (JGB) yields (albeit at 0.6% the 10-year JGB yield is still very low). Perhaps less surprising was the announcement by China’s Politburo that it would be providing fresh policy support to stimulate economic growth which has disappointed since China reopened, after abandoning its zero-Covid policy late last year.

Global equity markets (+3.2%) rose strongly over the month, in local currency terms. Regionally, the prospect of policy stimulus from China helped emerging market stocks (+5.4%) generate some of the strongest returns. The US stock market (+3.4%) also performed well due to increased hopes of an economic ‘soft-landing’ and its relatively high exposure to AI related companies. In comparison, UK (+2.2%), Europe ex UK (+1.5%) and Japan (+1.3%) lagged. In terms of style, value / cyclical stocks (+4.1%) marginally outperformed growth (+3.2%) orientated equities. This pattern was also reflected in the sector performance, with energy (+6.5%), communication services (+6.3%), materials (+5.5%), and financials (+5.3%) by-far the best performing areas. At the other end of the spectrum, information technology (+2.6%), utilities (+1.9%), and healthcare (+1.5%) sectors trailed the most.

Within fixed income markets, returns were more subdued due to the general expectation that central banks would keep interest rates higher for longer. Looking at the detail, while global government bond prices fell (-0.2%) only marginally, there was some disparity across markets, for example, UK government bonds (+0.8%) rallied sharply due to much lower-than-expected inflation data. Global investment grade credit (+0.6%) generated a positive return over the month as spreads tightened, and at the risker end of the credit spectrum the same was true with global emerging market debt (+1.6%) and global high yield (+1.4%) also performing well in July.

In terms of real assets, listed property and infrastructure stocks performed roughly in line with equities over the month with the global listed infrastructure (+2.1%) and global REITs index (+3.8%) both generating positive returns. Commodities (+6.3%) generated the best returns for the month, however, there was significant divergence across the different markets. Crude oil (+16.1%) and industrial metals (+6.9%) were the strongest areas. Oil prices were buoyed by additional supply cuts by Saudi Arabia, while industrial metals were helped by the expectation of economic stimulus measures in China. Agriculture (+2.6%) rose mainly because of rising wheat prices due to the withdrawal of Russia from the UN-brokered Black Sea Grain Initiative. However, the drought in Europe and the onset of El Nino are also seen as putting upward pressure on agricultural prices more broadly. Finally, gold (+2.6%) was also positive, benefiting from the prospect of being closer to, if not at, peak interest rates and a weaker US dollar over the month.

This month’s values quoted as at 31/07/2023. The above values are sourced from Bloomberg and are quoted in the relevant currency.

Clients of Centurium Bank can get in touch with their private banker directly to understand how their portfolios are responding to market events, or call +44 (0)7488 845584 to speak to our Client Services team.

If you would like to find out more about how we help manage clients’ investments, please contact us on the number above or via our Contact us page.

Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned here may not be suitable, and is included for information only and is not a recommendation. You should always seek professional advice before making any investment decisions.

The post July’s investment market commentary appeared first on Centurium Bank.

• Over the last 15 years, Quantitative Easing (QE) has supported bond prices, supressed volatility and rewarded investors who adopted fixed income beta strategies.
• However, last year’s sharp rise in interest rates and market volatility has created opportunities for active bond managers to add value.
• In fact, our analysis reveals that in periods of high volatility, active bond managers have demonstrated a significantly higher likelihood of outperformance relative to periods of lower volatility.
• Interestingly, quality matters given the greater dispersion among manager returns during higher volatility. In other words, finding active managers with experience of navigating such market environments will be to key to investor success.

The end of QE marks a different approach to bond investing

It’s September 2008 and Ben Bernanke, the then Chair of the US federal Reserve, is about to lead the US economy into uncharted territory by using quantitative easing (QE) for the very first time.

A bold move, certainly. But he had little option other than to give it a try. The interest rate lever had already been pulled, and economies were at a juncture, with financial collapse or a dice roll the only options.

Thankfully, the dice roll paid off and economies have rebuilt themselves from their nadir, but not without a cost to market stability. The commitment to do “whatever it takes” had a profound impact on markets, where a doubling of core equity valuations, the longest running growth cycle, new highs for bond prices and bitcoin’s ascent to almost $100,000 are just a few examples of the resulting distortions.

Of course, lots has been made of the subsequent dialling up in risk across the industry – where asset managers tested the bounds of their mandates, overweighting risk wherever possible. A less explored area is the impact QE had on general bond market volatility.

But before we jump to that, let’s just first clear up what exactly we mean by volatility. A common misconception is that volatility is all about directionality. Instead, what we’d colloquially call “choppy” or “range bound” markets often exhibit greater volatility than aggressively moving, but directional ones.

Over the last 15 years, bond markets have mostly been directional, which is of little surprise when we think about the mechanics of QE. In its simplest form, QE is the process by which central banks buy longer term sovereign bonds in the free market. The impact of doing so pins down the yields of the bonds directly involved, as well as those bonds which are benchmarked against them (to which there are many thousands). With yields tightly controlled by central banks, price movement was positive, but limited – effectively forced to oscillate within constraints dictated by policy makers.

We can see this when delving into the data. If we focus on non-recessionary market environments since 1990, the average US government bond market volatility (as measured by the MOVE Index – the yield curve weighted index of the normalized implied volatility of 1-month Treasury options) is ten points lower during times of QE versus periods when QE was not in use (see Figure 1).

Figure 1: QE suppressed bond market volatility

Source: Bloomberg, Nedgroup Investments

Focusing in on the above chart, you can see that when the bond purchasing program began during the onset of the Great Financial Crisis, bond volatility was unsurprisingly elevated.

Central bank intervention resulted in a material reduction in market volatility, however the fragility of the market was such that central banks were forced to remain accommodative for some time, limiting supply. On the demand side, a lack of appetite for the meagre yields on offer meant that buyers were equally hard to come by, with purchases coming primarily from price-insensitive buyers.

The lack of excess on both sides acted as a lingering anchor on broader bond market volatility – but what were the implications of this?

Volatility’s link to active management

Imagine you compete on a weekly basis for your local ten-pin bowling team “Livin’ on a Spare”. You are a serious team, despite your questionable name, so rightfully aghast when Bernanke Bowl decides to leave the barriers up.

Your team is full of star bowlers and have become accustomed to winning a strawberry flavoured slushy after several podium finishes. This week is different though.

Instead of “The Gutter Gang” shrieking with excitement when one of their players notch a single pin, they have been able to reach a respectable score, ricocheting their way towards a strike or two. Indeed, so have all the other teams, with dispersion across the board a lot lower than normal and average scores much higher.

Having the barriers up in bowling, is akin to the impact of QE on fixed income, where we have already seen has the effect of significantly reducing volatility. With volatility low, individual bond returns become clustered around that of an index, making it incredibly challenging for even the most skilled managers to add value.

Let’s put some numbers to this. If you were to look at the proportion of active fixed income managers who outperform the benchmark, across closely tracked bond peer groups[1], you would find that only 49% of managers outperform in low volatility environments, versus 60% in high volatility environments.

Figure 2: Higher volatility has meant a higher likelihood of outperformance from bond managers

Source: Morningstar, Bloomberg, Nedgroup Investments

A huge swing, where during low volatility less than half of active managers outperform and in high volatility nearly two-thirds do. Naturally, focusing purely on average manager performance has its limitations, since it tells us nothing about the range of performances across managers.

Delving into this further, we found that manager dispersion increases by over 2-times during high volatility environments compared to low volatility environments.

Figure 3: Higher volatility has brought on greater dispersion of manager returns

Source: Morningstar, Bloomberg, Nedgroup Investments

Therefore, despite volatility tending to improve the prospects for the average manager, the gap between the best and worst widens significantly.

Implications for bond investing going forward

In the same way a barrierless bowling lane highlights a truly accomplished bowling team. Volatility creates opportunities for active managers to add value for clients, by using their skill to target the most attractive bonds, avoid the worst, and in doing so allocate capital to its most efficient use. The opposite is true, however, for the unskilled manager, whose fallibility is brought to the fore by volatility.

It is reasonable to expect the recent bond market volatility to continue, and with it the fortunes of a highly skilled manager. Over the last 18 months, markets have gone through a period of abrupt transition, with central banks across the globe raising interest rates at the fastest pace in decades.

Despite signs of taking effect, the cumulative impact of this tightening is yet to be fully reflected in areas such as growth, unemployment and inflation.

Progress has of course been made on the inflation front, helped in part by falling commodity prices and general base effects. However, it is arguably too early to call victory just yet, with imbedded stickiness probable, given labour market tightness.

Furthermore, out of fear of repeating the events of the 80s (taking their foot off the break too soon and allowing the inflationary flames to regain momentum) central banks are likely to veer on the side of doing too much, rather than too little. Rates will therefore stay elevated for longer, putting pressure on sovereign ratings as debt servicing becomes strained, with rates no longer at zero (or lower bound).

But perhaps equally important, is that we are moving from a sedative period of QE to one of QT, where central banks will no longer be mopping up excess bond supply, but instead adding its own.

Moreover, this will all be happening at differing rates and intensities across the globe, as countries find themselves in very different cycles, fuelling further market volatility.

Such a high volatility environment will undoubtably have its own challenges, but it should also act as an opportunity for a highly skilled active manager to excel. The task now is finding the right one.

Clients of Centurium Bank can get in touch with their private banker directly to understand more about how we manage money on their behalf, or call +44 (0)7488 845584 to speak to our Client Services team.

If you would like to find out more about how we manage clients’ investments, please contact us on the number above or via our Contact us page.

Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios. They are referred to for information only and are not intended as a recommendation, not least as they may not be suitable. You should always seek professional advice before making any investment decisions.

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Cash might be particularly appealing given it comes after three long and difficult years. First, we had Covid-19, which felt like the world as we knew it was coming to an end. Then, just when we thought we were returning to normal times, Russia invaded the Ukraine and almost simultaneously, after years of ultra loose monetary policy, inflation assaulted our economies. Interest rates, which had remained at historically low levels since the financial crisis in 2008-09, suddenly started to rise as central banks increased their base rates to battle rampant inflation. With thirteen base rate rises in the UK alone since December 2021, cash now offers a decent rate of return, so can it be a welcome shelter from the turbulence of financial markets?

There is no straightforward answer that covers all scenarios. Much will depend on your financial circumstances, composure when faced with volatile returns, and time frames, but as a general rule cash is not a suitable long term investment. This is true in general, but particularly now.

Cash – the smiling knife

There is no doubt that cash feels safe. But what is the price demanded for that safe, comfortable feeling? Is it robbing you of opportunity?

Whether you’re invested and tempted to move your money into a savings account, or whether you’re a long-term cash holder who has been waiting for an opportunity to invest but now finds cash looks attractive, there are a few things you should consider:

• Cash is returning significantly less than inflation – you will be accepting a real term loss with immediate effect until inflation drops (at which point cash rates are also likely to drop). A gap as low as 3% between your returns and the inflation rate would halve the value of your money over 24 years.
• Ah, I hear you say, but I don’t intend to hold cash over 24 years. This is only temporary. OK, I would answer, but when you do decide to jump from cash back into the stock market, it’s likely you’ll pay a lot more for the shares you buy. Why? I’ll cite just two out of a number of reasons:

1. The maxim of “buy low, sell high”. Aside from a handful of technology stocks (Nvidia being the prime example) equity valuations are either fair value or cheap. This is the time to buy, not to sell. Would you sell in a housing slump? Probably, not. Neither should you sell in a stock market slump.
2. Markets are rising 80% of the time.* This means that when you can no longer get the current rate on your cash deposit, you might look back at today’s prices and wish you had invested more now.

If you’re currently invested, it’s also worth remembering that while the bottom number on your investment statement may have moved up and down rather uncomfortably recently, any losses are not locked in unless you decide to sell.

It’s also worth remembering that our portfolios are so highly diversified that the likelihood of significant, permanent loss of capital is minimal. In fact, the biggest risk to your capital is the human tendency to sell at the wrong time.

Capturing the opportunity

It’s easy to get caught up on the negative headlines, particularly as there’s a tendency not to publish positive news, but it’s inevitable that threats breed opportunities.

Our focus is on managing the threat and capturing the opportunity. Environmental change, an aging population, a shift in spending patterns, artificial intelligence – all of these are long-term opportunities which we are nurturing within your portfolios and can exploit, along with opportunities the market throws at us to buy cheaply.

Below are four key areas of change where we currently see investment opportunities:

Everyone’s circumstances are different and there might be good reasons to hold some of your assets in cash. But you should always consider this as part of a professionally thought-out financial plan, often in conjunction with your wealth planners, tax advisers and legal specialists.

If turbulent markets are causing you concern, or if you feel now might finally be the time you have been waiting for to invest, speak to your private banker. They can explore your options, including cash, and ensure they still match your appetite for risk and your long-term financial goals.

Clients of Centurium Bank can get in touch with their private banker directly to understand more about how we manage money on their behalf, or call +44 (0)7488 845584 to speak to our Client Services team.

If you would like to find out more about how we manage clients’ investments, please contact us on the number above or via our Contact us page.

Sources: Fidelity – Here’s how to defeat inflation, Centurium Bank: MSCI World, 12 month periods – March 1990 – December 2018

Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios. They are referred to for information only and are not intended as a recommendation, not least as they may not be suitable. You should always seek professional advice before making any investment decisions.

The post The opportunity cost of cash appeared first on Centurium Bank.

May was a slightly bizarre month, with markets having one eye on the US debt ceiling ‘pantomime’ and the other on anything related to artificial intelligence (AI). The fast-approaching date at which the US would default on its debt, signalled to be early June, caused the usual last-minute brinkmanship and related market volatility. Thankfully, an agreement was reached at the end of month that enabled the debt limit to be increased. While this was broadly expected, surprises can happen especially when emotional humans are involved. Interestingly, market attention during May was also focused on something completely unhuman, this being the frenzied search for stocks benefiting from AI technology, given the recent hype around tools such as ChatGPT (an AI chatbot). The moves propelled technology stocks such as Nvidia (which makes processors and software for this area) into a select group of companies worth over US$1 trillion, pushed it to even more stretched valuations (P/E 193), and extended the rally in what has been a very narrow number of mega cap stocks this year. In fact, without the 10 biggest names in the S&P500 which is up circa +10% year to date, the return of this index would so-far have been roughly flat!

Global equity markets (-0.3%) were broadly unchanged, in local currency terms, despite the hysteria regarding AI impacting certain stocks over the month. Regionally, the prospect of currency appreciation, as a result of the potential for tighter monetary policy by the Bank of Japan’s new governor, has increased foreign buying and helped stocks in Japan (+4.5%) generate some of the strongest returns recently. Apart from Japan, the US (+0.6%) was the only other major market that managed to generate a positive return during May, aided by its relatively high weight to the information technology sector. In comparison, Europe ex UK (-3.0%) and UK (-5.2%) lagged the most, reflecting in part their limited exposure to AI related stocks. In terms of style, growth stocks (+2.0%) significantly outperformed value / cyclical (-4.2%) orientated equities. This pattern was also reflected in the sector performance, with information technology (+8.2%), and communication services (+2.2%) by far the best performing areas. At the other end of the spectrum, energy (-9.0%), materials (-7.0%) and consumer staples (-6.3%) sectors trailed the most.

Within fixed income markets, returns were mostly negative due to the general expectation that central banks would need to tighten policy further. Looking at the detail, while global government bond prices fell (-0.4%) only marginally, there was a lot of disparity across markets, for example, European government bonds rallied abruptly towards the end of the month due to lower-than-expected inflation data. In comparison, US Treasuries (-1.1%) and UK Gilts (-3.4%) declined sharply due to signs that inflation may take longer to fall (remain sticky). Global investment grade credit (-0.9%) generated a negative return over the month as spreads widened, and at the risker end of the credit spectrum the same was true with global emerging market debt (-0.9%) and global high yield (-0.6%) also falling during May.

In terms of real assets, the more interest rate sensitive property and infrastructure markets significantly underperformed equities over the month with the global listed infrastructure (-5.2%) and global REITs index (-4.7%) both generating negative returns. Commodities (-5.6%) also fell sharply, however, there was significant divergence across the different markets. Crude oil (-10.7%) and industrial metals (-8.4%) were the weakest areas, due mainly to concerns about economic activity, especially with weaker than expected data coming out of China. Agriculture (-4.2%) also fell due to declining wheat and soybean prices. Finally, gold (-1.3%) was also negative, due to the headwinds of rising bond yields and a stronger US dollar over the month.

This month’s values quoted as at 30/06/2023. The above values are sourced from Bloomberg and are quoted in the relevant currency.

Clients of Centurium Bank can get in touch with their private banker directly to understand how their portfolios are responding to market events, or call +44 (0)7488 845584 to speak to our Client Services team.

If you would like to find out more about how we help manage clients’ investments, please contact us on the number above or via our Contact us page.

Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned here may not be suitable, and is included for information only and is not a recommendation. You should always seek professional advice before making any investment decisions.

The post June’s investment market commentary appeared first on Centurium Bank.

May was a slightly bizarre month, with markets having one eye on the US debt ceiling ‘pantomime’ and the other on anything related to artificial intelligence (AI). The fast-approaching date at which the US would default on its debt, signalled to be early June, caused the usual last-minute brinkmanship and related market volatility. Thankfully, an agreement was reached at the end of month that enabled the debt limit to be increased. While this was broadly expected, surprises can happen especially when emotional humans are involved. Interestingly, market attention during May was also focused on something completely unhuman, this being the frenzied search for stocks benefiting from AI technology, given the recent hype around tools such as ChatGPT (an AI chatbot). The moves propelled technology stocks such as Nvidia (which makes processors and software for this area) into a select group of companies worth over US$1 trillion, pushed it to even more stretched valuations (P/E 193), and extended the rally in what has been a very narrow number of mega cap stocks this year. In fact, without the 10 biggest names in the S&P500 which is up circa +10% year to date, the return of this index would so-far have been roughly flat!

Global equity markets (-0.3%) were broadly unchanged, in local currency terms, despite the hysteria regarding AI impacting certain stocks over the month. Regionally, the prospect of currency appreciation, as a result of the potential for tighter monetary policy by the Bank of Japan’s new governor, has increased foreign buying and helped stocks in Japan (+4.5%) generate some of the strongest returns recently. Apart from Japan, the US (+0.6%) was the only other major market that managed to generate a positive return during May, aided by its relatively high weight to the information technology sector. In comparison, Europe ex UK (-3.0%) and UK (-5.2%) lagged the most, reflecting in part their limited exposure to AI related stocks. In terms of style, growth stocks (+2.0%) significantly outperformed value / cyclical (-4.2%) orientated equities. This pattern was also reflected in the sector performance, with information technology (+8.2%), and communication services (+2.2%) by far the best performing areas. At the other end of the spectrum, energy (-9.0%), materials (-7.0%) and consumer staples (-6.3%) sectors trailed the most.

Within fixed income markets, returns were mostly negative due to the general expectation that central banks would need to tighten policy further. Looking at the detail, while global government bond prices fell (-0.4%) only marginally, there was a lot of disparity across markets, for example, European government bonds rallied abruptly towards the end of the month due to lower-than-expected inflation data. In comparison, US Treasuries (-1.1%) and UK Gilts (-3.4%) declined sharply due to signs that inflation may take longer to fall (remain sticky). Global investment grade credit (-0.9%) generated a negative return over the month as spreads widened, and at the risker end of the credit spectrum the same was true with global emerging market debt (-0.9%) and global high yield (-0.6%) also falling during May.

In terms of real assets, the more interest rate sensitive property and infrastructure markets significantly underperformed equities over the month with the global listed infrastructure (-5.2%) and global REITs index (-4.7%) both generating negative returns. Commodities (-5.6%) also fell sharply, however, there was significant divergence across the different markets. Crude oil (-10.7%) and industrial metals (-8.4%) were the weakest areas, due mainly to concerns about economic activity, especially with weaker than expected data coming out of China. Agriculture (-4.2%) also fell due to declining wheat and soybean prices. Finally, gold (-1.3%) was also negative, due to the headwinds of rising bond yields and a stronger US dollar over the month.

This month’s values quoted as at 31/05/2023. The above values are sourced from Bloomberg and are quoted in the relevant currency.

Clients of Centurium Bank can get in touch with their private banker directly to understand how their portfolios are responding to market events, or call +44 (0)7488 845584 to speak to our Client Services team.

If you would like to find out more about how we help manage clients’ investments, please contact us on the number above or via our Contact us page.

Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned here may not be suitable, and is included for information only and is not a recommendation. You should always seek professional advice before making any investment decisions.

The post May’s investment market commentary appeared first on Centurium Bank.