Markets over Q1 2022
It was a very volatile start to the year as markets fell globally through the majority of the first quarter. The poor start to 2022 was reflective of surging inflation, rising interest rates, further disruptions to supply chains and ongoing geopolitical uncertainty. Global markets were rocked again midway through Q1 by Russia’s invasion of Ukraine, causing equity markets to plummet. This, coupled with an increasingly hawkish stance since the turn of the year from central banks, subsequently caused bond yields to rise.
The West was prompt and united in responding to the outbreak of the conflict, condemning Russia and imposing a severe range of sanctions against oligarchs, the Kremlin and the Russian central bank in an attempt to freeze assets and deny Russia access to the global financial system.
IronMarket Portfolios over Q1 2022
The IronMarket portfolios held up well given the highly volatile market environment, particularly if we compare to our peer groups in the Advisory and Wealth Management Sectors with their respective indices losing more than 5%, whilst the equivalent IronMarket Balanced Portfolio was almost flat at -0.73% over the same period. This was achieved with our risk-managed & research-led tactical asset allocation. This achieved the dual purpose of exposing portfolios to key opportunities whilst avoiding excessive risk to client assets & in quarter one, that was all about dampening that volatility.
The strongest contributor to performance across the IronMarket portfolios over the first quarter was the BlackRock Natural Resources Growth & Income Fund (introduced to portfolios 2021), which posted a staggering return of 26.53%.
We saw stellar performance in some of our tactical calls made in Q1, with the iShares S&P 500 Energy Sector UCITS ETF up 21.02%, the iShares S&P 500 Health Care Sector UCITS ETF up 10.29% and the WisdomTree Japan Equity UCITS ETF returning 5.83% (all from inception 26/01/22). The HSBC MSCI Pacific ex Japan UCITS ETF, introduced into the portfolios in February, delivered a resounding 8.02% to quarter-end.
Q1 has seen huge ‘value’ outperformance over ‘growth’, with the MSCI World Value Index outperforming the MSCI World Growth Index by circa 10%. Our preference for value in the portfolios and subsequent positioning has served us well over the quarter, in a period where growth performance has been hugely detrimental to returns.
Energy was the best performing component in commodities, which rallied strongly through Q1 and was the best performing asset class by some margin, with strong price gains for natural gas and oil amid rising global demand for energy and fears of supply constraints from the Russia-Ukraine conflict.
Expectations Moving into Q2 2022
Heading into the New Year, we envisaged a slowdown in global growth throughout 2022 and this has been evident so far through Q1, with the conflict between Russia and Ukraine as well as rising inflation dampening growth prospects and persisting as headwinds to the outlook.
On the inflation front, energy prices remain extremely elevated, and the situation in Eastern Europe and subsequent sanctions on Russia are not helping in terms of the price and availability of energy supplies. This could take some time to resolve, and alternative supply sources need to be established as a workaround quickly, particularly for Europe, given the region’s reliance on Russian energy.
The surging level of inflation also remains a key risk for the US economy. Higher inflation coupled with greater uncertainty triggered by Russia’s invasion of Ukraine leaves the Fed in a position whereby they now see the need to act aggressively to curtail inflation, implied by their ongoing hawkish rhetoric. We remain cautious to this playing out.
Our biggest challenge remains to balance the risk profiles of our portfolios in an environment of high inflation and higher interest rates meaning our usual portfolio ‘balancers’ of fixed income are coming under increasing pressure. Thus far, our active, tactical and diversified approach has served well.
We continue to navigate the situation carefully, utilizing all of the data and economic research we have, to position the portfolios accordingly in what remains a highly uncertain time. The human cost of the unprovoked aggression toward Ukraine is unfathomable and our thoughts and prayers remain with those affected by the crisis.