April 2022 Review

By Paul Sedgwick – Portfolio Advisor

Dear Partner,

Another tough month for global asset prices as the Global equity index fell around 7%, bond indexes just under 3% and according to Macro research, balanced portfolios lost about 3% ( STEPS estimate -1.9%). Non-discretionary as well as oil and materials were the sectors that outperformed the broader market.

Total Return Balanced and Total Return Equity Portfolios:

Our broad exposure to those sectors helped our performance, in particular Nestle, Reckitt Benckiser, and Smith & Nephew. The latter results confirm a continued recovery from Covid effects as the CEO described the start of the year as encouraging. Several of our holdings reported earnings in the past weeks, including Nestle, as organic sales grew in 2021 by 7.5%, its highest level in more than a decade. Hermes announced revenues of almost 3 billion euros, well above analyst expectations. Sanofi posted a good set of numbers, mainly due to a solid rebound in demand for prescription-free drugs and Sanofi's bestselling drug Dupixent. Sanofi continues to trade at a significant discount to its peers. Johnson Matthey's share price was boosted towards the month-end as US conglomerate Standard Industries announced a 6% stake in the company. Coca Cola likewise reported solid earnings as its dividend yield remains far superior to the S&P 500. Reckitt Benckiser demonstrated that it can pass on increased costs and maintain margins in the latest earnings reports as the stock trades in line with its historical average. Microsoft, a core holding for many years, once again delivered a solid quarter of earnings.

We made some minor adjustments to the portfolio, adding to PayPal post the earnings results. We continue to use the rise in gilt yields at the very short end of the curve, adding a one-year gilt to the portfolio maturing in January 2023. We paid just over 99 pence on a yield of just over 1.2%. THG has announced a new Chairman, and the shares have had something of recovery but remain well below the highs. The position is small in the portfolio as we continue to monitor the news.

This past month, Walt Disney shares were one of our underperformers as Netflix's results impacted the streaming sector overall. Walt Disney’s earnings report is due on the 11th of May. 3M shares posted revenues slightly ahead of forecasts as the outlook for organic growth remains unchanged. Encouragingly, Organon was declared a buy from Goldman Sach's analysts this month.

Global Macro Portfolio:

Almost all asset classes have had a difficult start to 2022 as headwinds to the growth in the global economy remain many. The most significant of which is the tightening monetary policy, particularly in America. The Bank of England is likely to raise interest rates for the fourth meeting in a row later this week. China's continued zero-tolerance policy impacts its economy, which was reflected in the recent services and manufacturing PMIs. The ongoing conflict between Russia and Ukraine and the sanctions imposed continue to affect the broader economy. Despite a reasonably solid Q1 earnings season overall, there were some misses from some notable companies.

Having noted all of that, equity markets may have started to discount some of this negative news. The Nasdaq index is down almost 24% from its peak, and the S&P 500 nearly 14%. These are starting to look similar to the corrections we saw as the Fed tightened in 2018. Sentiment has become quite bearish, which can often lead to a recovery in stocks. Despite the weaker than expected US GDP report for the first quarter that suggested the world's largest economy contracted in the first quarter of 2022, economists are not forecasting a global recession at this time.

As we always remind ourselves at times of stress and high volatility, these are when the opportunities present themselves. We will continue to monitor the companies we own, whilst looking for new possibilities for the portfolio. See factsheets for up to date performance

Yours sincerely,

Cube Capital