Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Markets remained focused on interest rate policy in the first quarter, driven as much by the quantum and duration of the moves as by the impact of the tightening in policy over the previous 15 months. Just after central bankers had been quick to reaffirm their commitment to curbing inflation, markets were hit by fears of a banking crisis, caused not by asset quality problems but by liquidity concerns: the collapse of Silicon Valley Bank was triggered by a breath-takingly fast run-on deposits, which also pressurised US regional banks; Credit Suisse was, in turn, rescued by UBS with assistance from the Swiss government. The spike in volatility led market participants to question how much further tightening was needed but also to wonder how much damage had already been done. Despite this, UK equities made progress over the quarter, helped by lower commodity prices in Europe, China’s rapid reopening and further signs that the domestic economy may be under less pressure than feared.
There were few themes driving market performance although large-caps continued to outperform small- and mid-cap indices despite a modest drag from the largest sectors, such as Pharmaceuticals and Oil & Gas; notwithstanding the turmoil in the sector, Banks delivered a positive return with the Asian-focused banks benefiting from better sentiment towards China[1]. Domestic cyclicals performed well: UK consumer spending habits proved more robust than expected, boosting retailers and leisure stocks
Portfolios across the UK Equity Team performed well in the first quarter. Whilst the holding in Rio Tinto was a negative contributor, this was more than offset by not owning other miners in the sector. After very strong performance in 2022, Pearson weakened as revenue guidance for 2023 was modestly disappointing. The standout positive contribution was delivered by 3i whose update on Action, its largest portfolio holding, confirmed its long-term growth potential. RELX produced strong results and demonstrated that organic revenue growth can continue to accelerate even after a decade of improving performance.
The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.
Risk: The specific companies identified and described above do not represent all of the companies purchased or sold, and no assumptions should be made that the companies identified and discussed were or will be profitable.
[1] Source: BlackRock, Bloomberg, as at 31 March 2023
