Caerus Select monthly commentary January 2022
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UK: Suitable for retail and professional clients.
Caerus Select monthly
commentary
January 2022 Stuart Clark
Portfolio Manager
Weakness in fixed-income
Developed market equity Our alternatives holdings helped markets was reflected in
holdings made some positive dampen some of the losses from performance, but our
returns despite the equity sell-off other parts of the portfolio lower-than-average exposure
was relatively positive
Market review
Many global equity markets began 2022 close to 12-month highs;
however, the buoyant mood was short lived. The combination
of high inflation numbers, tensions in Eastern Europe and the
publication of the Federal Reserve’s (Fed) December meeting
minutes early in January sparked widespread volatility as
fixed-income markets rapidly re-priced the number of expected
US rate hikes in 2022.
This sent US Treasury yields sharply higher (and their prices lower).
US technology names, alongside other more highly-valued
growth equities, were the chief victims of the ensuing equity
market sell-off, with the Investment Association (IA) North
America sector posting an average loss of 6.4%. European
equities were also down, with the IA Europe ex UK sector down
an average 6.3%.
Quarterly growth in the eurozone slowed in the final quarter
of 2021 to 0.3% from 2.3% in the previous three months.
The slower growth was linked to restrictions imposed by some In contrast to the developed market sell-off, emerging market
member states due to the Omicron variant. equities performed comparatively well, resulting in the IA Global
Emerging Markets sector declining an average of 2.6%. The IA
Elsewhere, Europe’s energy crisis deepened as Russian threats
China/Greater China sector fell an average of 4.7%, as inflation
to invade the Ukraine continued, pushing fuel prices and
eased to 1.5% in December, down from November’s 15-month
energy stocks higher. Consequently, Brent crude oil had its
high of 2.3%. Expectations are building for a round of economic
strongest month in a year, rising 17%.
stimulus in China and, if inflation continues falling, this would
It was, however, a relatively positive month for UK equities make action from policymakers more likely.
versus their global counterparts, as the construct of the index
However, the continued focus on a zero-covid policy may
favoured the prevailing macro-conditions, although the IA UK
lead to a relative headwind for Chinese growth compared to
All Companies sector still fell an average of 3.7%. Meanwhile,
developed markets as they start to shift the focus on how to
the unemployment rate fell to 4.1% in the latest reported
live with, and manage, outbreaks.
period to November 2021, highlighting the strength in the UK
labour market and helping justify policy tightening from the In government bond markets, monetary policy-sensitive
Bank of England. shorter-maturity issues sold-off more than longer maturities.
Corporate bonds (issued by companies) were relatively sanguine
compared to equity markets, but they still lost ground.
(All performance figures in sterling terms and rounded to one Continued on next page
decimal point.)
Performance review
Against this backdrop, the Caerus Select Portfolios all recorded
modest losses in January, with the higher-risk profiles depreciating
the most.
A storm of headwinds ranging from tensions between the
US and Russia, worries over interest rate rises in the US and
soaring inflation sent markets into negative territory. In addition,
bond yields were sent higher meaning prices fell in the month.
Despite the sell-off across all regions, the developed market
equities portion of the portfolio ended the month marginally
ahead of the index, as some funds still managed to post
positive returns. These included the Invesco Asian, Quilter
Investors Europe (ex UK) Equity Income (Schroders) and BNY
Mellon US Equity Income funds.
In addition, the portfolio benefited from downside protection
from a number of funds that despite a negative return still
outperformed the broader index. For example, the M&G Overall, the UK fared better than most equity regions
Japan fund benefited from a combination of an overweight to as economic data remained resilient and the larger-cap
industrials and strong selection within the sector. Meanwhile, companies performed well. Unsurprisingly, the Artemis
the TM Redwheel Global Equity fund benefited from the fact Income fund was positive for the month, as was the Jupiter
that the value style factor outperformed growth during January. Merian UK Equity Income fund thanks to stock selection within
the consumer staples sector.
Among the main detractors were the Allianz Continental
European fund, which suffered from an overweight to the Not all of the UK positions were so positive, however, as the
IT sector that saw steep falls in the month, and the Jupiter Blackrock UK fund had a poor month with losses exceeding
Merian North American Equity fund. 10%. The Quilter Investors UK Equity (Jupiter) and the Artemis
UK Special Situations funds also disappointed.
The emerging market equity part of the portfolio ended
the month behind the broader index. Although the Quilter During the month, our alternatives holdings were strong
Investors Emerging Markets Equity Income fund (AllSpring) performers, managing to dampen some of the losses from
was actually positive, and a standout performer thanks to its other asset classes. That said, this section of the portfolio
overweight position in financials, this was offset by weakness did still make a loss, mainly driven by the PIMCO Dynamic
from the other holdings. In particular, the JP Morgan Emerging Multi Asset Fund, although the Jupiter Merian GEAR fund
Markets Equity fund suffered the most following the same helped offset that with a return of nearly 1% for the month.
fate of other growth holdings in the portfolios. The Jupiter Elsewhere, the Janus Henderson Absolute Return Bond fund
Global Emerging Markets Focus fund also had a tough month was marginally lower.
as a result of its overweight position to IT and consumer
Fixed-income markets were weak during the month as
discretionary stocks.
bond yields rose (and prices fell), which was reflected in our
allocation to the asset class. All of our holdings in this space
were negative with the greatest loss experienced by the
iShares UK Gilts All Stocks Index fund falling around 3.3%.
Outlook
We expect to see a tougher year for equities as earnings growth slows once more. With markets in the process of re-rating
as interest-rate expectations suddenly coalesce in the face of the steepest inflation seen in developed markets for 40
years, this should be a lucrative environment for active managers.
Although we recognise the various arguments for ‘relative value’ still latent in the UK market it’s becoming increasingly difficult
to see what the catalyst might be that releases all this pent-up value. Ultimately, we’re of the mind that the UK market is
‘cheap’ for good reason. There are inflation and Brexit headwinds still ahead while political unrest is simmering – we can’t rule
out the possibility of a leadership challenge or even a snap election in 2022.
Important information
Past performance is not a guide to future This communication is for information
performance and may not be repeated. purposes only. Nothing in this communication
Investment involves risk. The value of constitutes financial, professional
investments and the income from them or investment advice or a personal
may go down as well as up and investors recommendation. This communication
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invested. Because of this, an investor an offer to buy or sell any securities or related
is not certain to make a profit on an financial instruments in any jurisdiction.
investment and may lose money. Exchange No representation or warranty, either
rate changes may cause the value of expressed or implied, is provided in relation
overseas investments to rise or fall. to the accuracy, completeness or reliability
of the information contained herein, nor
This communication is issued by Quilter
is it intended to be a complete statement
Investors Portfolio Management Limited
or summary of the securities, markets or
(trading as ‘Quilter Investors’), Senator
developments referred to in the document.
House, 85 Queen Victoria Street, London,
England, EC4V 4AB. Quilter Investors Portfolio Any opinions expressed in this document are
Management Limited is registered in England subject to change without notice and may
and Wales under number 03056894. differ or be contrary to opinions expressed
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number 175524. upon by retail investors.
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