The MSCI World Index was up 2.8% for the month, offering a degree of recovery following two months of losses in the market. Overall, for the first quarter of the year, the major indices reported their biggest quarterly losses in the last two years. Furthermore, earnings season is also starting the second week of April, and this will be one of the main topics that will be spurring the market performance.
The worst performers for the fund for the month was Charter Communications (-9%), Bank of New York (-6%) and Lloyds Banking Group (-5%) mainly due to market volatility. Best performers for the fund were Nvidia (+12%), Cincinnati Financial Corp. (+11%) and Alexandria Real Estate (+7%). Nvidia’s share price was pushed by MarketWatch reporting that the company is informing investors that its targeting certain areas in the semiconductor space which will be a $1 trillion market opportunity for the company. The total addressable market opportunity the company is targeting is: $100m from Omniverse enterprise software; $100bn in annual revenue from video gaming services (this includes GeForce Now their cloud gaming service); $150bn from selling AI enterprise software; $300bn from sales of other chips and systems; and another $300bn from sales of automotive chips specifically. These huge numbers gave the market more clarity on the company’s overall strategy, towards a global world of omniverse. With the current environment being one of rate hikes, sectors financials and insurers perform well; this is evident with Cincinnati Financial Corp’s share price performance. Insurance companies and interest rates have a linear relationship i.e., higher rates mean higher growth because of their underlying returns.
In February, inflation hit a four-decade high of 7.9% driven by the disruption in the commodities markets because of the Ukraine-Russia war, strong consumer spending fueled by stimulus checks, and wage increases. The last time the Federal Reserve (the Fed) experienced such high inflation, the then chairperson (Paul Volcker) engineered a recession with large rate hikes to bring about relative macroeconomic stability aka The Great Moderation. To combat the high inflation, the Fed had their first-rate hike of 25 basis points since 2018 which resulted in yields increasing across the curve. Chairman Powell stated that the U.S. “economy is very strong” to handle tighter policies and that the probability of recession isn’t “particularly elevated”. Essentially, the Fed is trying engineer a “soft landing” meaning a moderate slowdown in economic activity to curb price increase, while ensuring that the economy and job market grow- a very tough task for the Fed. As Alan Blinder once said, “You’ve got to be both lucky and good” to avoid causing a downturn.
Given the macroeconomic risks that the market is currently experiencing, we’re taking measured equity risk as we are cautious of the volatility in the market. Uncertainty brings about volatility and with all that’s going on in the market, we can expect more volatility. Our equity exposure for the month has been below 45% because we believe that consistent positive returns can be achieved without taking on undue risk. We do still believe that there are opportunities out there.