Market Development: Market development in January was brutal in that stocks were knocked hard across the board on the realisation that the Federal Reserve is going to put interest rates up this year, once it stops its QE program in March. The implosion of the concept growth stocks, as well as SPAC and Bitcoin during 2021, indicated that the environment is already changing.
The investment world also seems to have now woken up to the fact that the old-style Oil and Gas industries are crucial to the functioning of the real economy – the lack of investment due to the focus on environmentally friendly investing means that the world is now facing a tight squeeze in Oil – consequently, the Energy sector was the best performing sub-sector (up 15%) while the market was down some 5%.
There is a saying that “the way January goes is the way the year goes…” it is clear that the inflationary pressures are causing Central Banks around the world to change their stance, and will likely aggressively tighten policy – the United Kingdom put its rate up last week.
That said, we expect it will be a year of two halves as by the second half, inflationary pressures should ease, which might cause the market to reassess which sectors it likes. It will be a volatile year, with plenty of potential for an active manager undertaking a fundamental bottom-up approach to investing.
The Strategic Global Quality Fund outperformed the market by 1.5% given its underweight position in the Technology sector as well as its overweight to the European markets. The Fund is now more broadly positioned with some 15% exposure to the Financials sector, as well as approximately 8% to the Energy sector while remaining overweight Europe and underweight the United States.
The largest contributor to alpha was Fidelity National Information (+0.7%) – this stock had suffered severely during 2021, followed closely by Visa (+0.4%). Both stocks benefitted from the improving outlook in relation to international travel and general level of spending. On the negative side, SIG suffered (-0.4%) from expectations that the company will not be able to offset the price increases seen in its cost base with sufficient product price increases, combined with sector rotation away from highly-priced stocks.
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 12/02/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.