Market Development and Outlook: The month of May showed continued volatility in the MSCI World Index, with a fall of 5% over the first half of the month, followed by a rise to be more or less flat by month end.
News flows continue to be the same; with no resolution in sight of the war in Ukraine, continued high oil prices, continued inflationary pressures due to energy costs, the lock-down in China and wage pressures.
The Federal Reserve is behind the curve and is just starting on its path of increasing interest rates. It is now also clear that the ECB will have to do the same. The raising of interest rates, combined with central bank balance sheet reductions in the face of declining real incomes around the world, can only lead to a consumer and economic recession down the line. It is only a question of time.
The hopeful economists and strategists writing about soft landings have obviously not read their history books – or are not able to write the truth given they work for the sell side. We will continue to adjust the macro sensitivity of the portfolio given the above comments.
The Strategic Global Quality Fund outperformed its market by approximately 0.7% during the month, driven by the allocation effect with a positive contribution from the overweight positioning towards Energy (0.9%) and underweight to Consumer Discretionary and Information Technology (0.9% together) names. The structural overweight to Consumer Staples detracted during the period (-0.6%).
There were not really any big stand-out positive drivers on the individual stock side with the two largest Siemens Healthineers and IFF contributing about 0.5% together. Both companies had good results – Siemens is benefitting from the increasing expenditure within the healthcare space by hospitals, while IFF posted strong underlying results confirming the integration with Dupont is on track. On the downside, Moody’s impacted performance by -0.2% on the back of a warning from S&P given the worsening macro-economic outlook.
As always, we invite investors and prospective investors, to get in touch should you wish to discuss the positions held in the portfolio. Please do not hesitate to contact us for further information.
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The views and statements contained herein are those of Lofoten Asset Management in their capacity as Investment Adviser to the fund as of 14/06/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.