The quarter saw a continuation of the debate as to the state of the global economy, inflation fluctuation and where peak interest rates lie. On the growth front, the pendulum appeared to swing in favour of a soft-landing and therefore equities were robust for the most part. Inflation, the bane of fixed income markets, started showing signs of global divergence. Signs of moderation of inflation in the US led the Federal Reserve to pause rate hikes in June. Stickier-than-expected inflation in the UK however prompted the Bank of England to increase rates sharply, with signs of more to come, resulting in GBP rallying against major peers which in turn hampered returns on non-GBP denominated assets.
The persistent uncertainty made for a challenging backdrop for fixed income investments, with gilts falling back across all maturities and in doing so punishing longer duration positioning. UK assets more widely were out of favour because of the inflation situation, in addition to issues arising in the regulated water market which raised the spectre of nationalisation. Corporate bonds, in particular high yield, fared a little better as credit spreads compressed, and higher coupons dampened the effects of falling capital values.
Within equities, the UK declined under the added weight of a negative quarter for energy and materials sectors on the back of sinking commodity prices. The best-performing equity region was the US, which was up over 5%, though driven largely by just seven very large stocks in the technology sector. Asia and the Emerging Markets continued to struggle, with China dragging down the indices, which more than offset very robust performances from India and Brazil. Japanese equities hit levels not seen since the early 90s, however the returns in GBP terms were diluted by yen weakness, owing to the Bank of Japan’s relaxed attitude to inflation running higher than target and the aforementioned GBP rally.
In alternatives, both property and infrastructure had a challenging quarter, which was unsurprising given their close association with the direction of interest rates.
Looking ahead there are positives on the horizon. While a recession looks to be almost inevitable, particularly in the UK, this should point towards the end of the interest rate rising cycle. Given markets are forward looking, they are now beginning to look towards this point and any signs that inflation is falling back should be received positively by interest-rate-sensitive investments such as bonds, infrastructure and property where a lot of bad news appears priced in.
Fundamentals update
This update is designed to keep you up to date with what’s been happening on Fundamentals to help support you with your investment research.
As a reminder, the Fundamentals website is designed to help you with your investment research and keep you up to date with the latest views from the AJ Bell Investments Team, covering the funds and ETFs that the team think have the potential to achieve their stated objectives.
Changes in Fundamentals:
Over the second quarter of 2023, there have been a number of additions and removals from the list:
| Funds Removed | Funds Added |
|---|---|
| NinetyOne UK Alpha | Blackrock ICS Sterling Liquidity |
| Fidelity Strategic Bond | J.P. Morgan Global Equity Income |
| Trojan Global Income | Trojan Fund |
| Trojan Income | |
| Janus Henderson Absolute Return |
Meeting notes:
One of the advantages of the Fundamentals service is the regular updates from the meetings the Investment team have with the underlying fund managers. These will be updated at least once a year and many have been added over the last few months.
Over the quarter, 20 funds have been reviewed and had their commentaries updated. Take a look at the AJ Bell reports on the website to see the latest thoughts of the fund managers and our assessment too.
| Funds updated in the past quarter | |
| abrdn Global Smaller Companies | Man GLG Undervalued Assets |
| Baillie Gifford Japanese | Montanaro UK Income |
| Fidelity Asia | Royal London Corporate Bond |
| Fidelity Emerging Markets | Royal London Sustainable Leaders Trust |
| Fidelity Global Special Situations | Schroder Global Equity Income |
| Invesco High Yield | Schroder Global Recovery |
| JPM Emerging Markets Income | Stewart Investors Asia Pacific Leaders Sustainability |
| Jupiter UK Special Situations | Stewart Investors Worldwide Sustainability |
| M&G Emerging Markets Bond | TB Evenlode Income |
| Man GLG Income | TM Tellworth UK Smaller Companies |
AJ Bell reports:
Each fund or ETF on the Fundamental service has an AJ Bell report that is updated quarterly. This report contains key information on the fund or ETF such as the latest positioning, performance and risk data, and key information such as charges and ESG data. All of these reports have been updated to help you with your research due diligence.
Other news:
We are constantly researching the investment universe to ensure that the Fundamentals list contains a wide range of high-quality managers. Keep checking back on our website to see our latest ideas and updates.
We love to get your feedback on the Fundamentals service so if you have any thoughts you’d like to share with us, please let us know.
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