Fundamentals – Q3 2023

2 weeks ago

As it often does, the summer lull ended with a bout of volatility, leaving equity and bond markets down for the quarter. For UK-based investors however, a fall in the pound cushioned the severity and nudged returns into positive territory.

The value of the pound was dragged lower as the market repriced the peak in the Bank of England’s base rate amid slightly-better-than-expected inflation figures and evidence of economic weakness spreading to the service sector. Sterling fell back further in September as the MPC unexpectedly held interest rates steady for the first time since embarking on this hiking cycle.

On both sides of the Atlantic longer-dated bond yields drifted higher to reflect the notion that interest rates may now be ‘higher for longer’. After a quiet second quarter, duration returned to the fore as a key differentiator in bond markets. The longer end of the gilt curve repriced higher, and the short end moved lower, favouring shorter duration positioning. Corporate bonds were offered some insulation via narrowing credit spreads, until late in the quarter when spreads widened as the post-summer supply picked up and so too did market volatility.

Having risen over 20% during the quarter, oil prices will not be as favourable for inflation and the economy in the months ahead. In equity markets the energy sector consequently performed well and aided the FTSE 100 relative to Developed Market peers, as did the falling pound given the multinational nature of the index. European equities fared poorly as the downturn in the Chinese economy raised fears for luxury goods retailers. After a subdued first half of the year, Indian equities performed well as the nation played host to the G20 summit, and in doing so hoped to showcase its manufacturing base as an alternative to China.

Turning to alternatives, UK property was not immune to the volatility however ended the quarter relatively unchanged.

Looking ahead, nearing the peak for interest rates in this cycle is a positive development for bond markets up to a point. Inflation remains the key determinant for longer duration assets, and with a headwind from oil prices to drop into the numbers in the months ahead, further uncertainty abounds. Having said that, markets are forecasting mechanisms. Some equity markets appear to have come to terms with recessionary conditions, and investors are looking for signs of improvement.

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 third quarter of 2023, there have been a number of additions and removals from the list:

Funds Removed Funds Added
Amundi MSCI Japan ETF State Street Glb High Yield Bond Screened Index
iShares Core £ Corporate Bond ETF iShares MSCI World Islamic ETF
  iShares Corporate Bond Index (UK)
  Trojan Ethical Fund

Meeting notes:

One of the advantages of the Fundamentals service is the regular updates from the meetings the Investment Team has 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, 26 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  
Allianz Strategic Bond Jupiter Japan Income
Artemis Strategic Bond Lazard Emerging Markets
Artemis US Select Lightman European
Artemis US Smaller Companies Liontrust SF Global Growth
Baring Europe Select Liontrust SF UK Growth
Blackrock Continental European Income Liontrust UK Growth
Blackrock European Dynamic Martin Currie UK Smaller Companies
Blackrock Gold & General Polar Capital Global Insurance
CT Responsible Sterling Corporate Bond Polar Capital Global Technology
Evenlode Global Income Stewart Investors Asia Pacific Leaders Sustainability
Invesco Asian TB Amati UK Listed Smaller Companies
JPMorgan US Equity Income Trojan fund
Jupiter Asian Income Twentyfour Corporate Bond

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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