Old Mutual Investment Group

Macro Perspective 25/2022 | Fund positioning in a bear market

June 21, 2022 Old Mutual Investment Group
Old Mutual Investment Group
Macro Perspective 25/2022 | Fund positioning in a bear market
Show Notes Transcript Chapter Markers

Portfolio Manager, Peter Brooke, shares his latest weekly perspectives, this week evaluating June’s bear market movements, hawkish central banks across the board, and how his funds are positioned while global equities and bonds are selling off. 

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 Peter Brooke  00:00

Good day. Peter Brooke, a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 25 of 2022, and I want to respond to one of our financial advisers, who contacted me to ask what is going on in markets? 

 00:14

 I think this is a pertinent question, as June has seen a marked change in tone. The global equity sell-off accelerated into a bear market, with world equities down 10% month to date and 22% year to date. More risky assets like Bitcoin were even worse, falling 36% month to date for a 57% decline in the year. The selling also became indiscriminate. For instance, both value and growth fell 10% in the month. Previously, value, being cheaper, had held up and almost all of the year to date decline occurred this month. 

 And the same is true of South Africa. Our shareholder weighted or Swix index is down 9% month to date, but 7% year to date, showing that all of the pain has taken place in the last 20 days. The big change in prices was driven by more hawkish central banks, led by the 75 basis point hike from the Fed. But the Fed is not alone, with more than 120 hikes across the world this year. And you know things are getting bad when even the Swiss join the party with a surprise rate hike. This in turn has pushed up the global cost of capital, as global bond yields have shot up, and price earnings multiples have contracted. With both global equities and global bond selling off, this tells us it is more about a valuation or a de-rating than about growth. 

 01:40

 The bad news is that I think a lot of this was justified, as pockets of the market, particularly US equities and US bonds, were very expensive. The good news is that our funds were underweight these expensive assets, helping to protect them from the fall. But as all assets start to correlate, the sell-off hurts even well-diversified portfolios. I don't think we're necessarily out of the woods yet, as more rate hikes are coming, putting pressure on global growth and profits. However, I would strongly advise against ditching your investment plan. In the very short term, most markets are extremely oversold and should bounce. Although to be fair, this advice is only relevant to traders as no one else should be operating on this sort of time horizon. But longer term, the de-rating is creating better value. I'll go into this in more detail on our expected returns next week. We are currently updating them as part of our biannual themes process. 

 So, until then, enjoy your week.

A marked change in tone in June - what is going on in the markets?
The bad news – and the good news. More rate hikes coming, but avoid ditching your investment plan.