Markets followed a distinctly familiar path this month, rising strongly in the first two weeks before falling back sharply. This time it was not the speculative behaviour of a small number of individuals that caused a sell-off but something much more fundamental and is touched on below. Performance of some of the main indices are highlighted below:

(All figures are based on bid to bid pricing with income reinvested, in Sterling terms)

After an initial rebound, markets looked set to perform strongly through February as investors became confident at the prospect of the US passing its long expected $1.9 trillion stimulus package. That was, until rising inflation expectations sparked a significant rise in Bond yields across the globe. The US 10-year Treasury yield moved from 1.10% to 1.42% and here in the UK we saw 10-year Gilt yields rise from 0.32% to 0.80%.

Why is this important? Well, as well as directly impacting fixed interest, equity investors often discount the future earnings of firms based on these rates. Any increase, therefore, sees the value of these future earnings worth less than before and in turn affects the amount an investor is willing to pay for that company. This can lead to stock-prices coming under pressure and particularly so this time for those areas of the market that have driven wider performance in recent years, such as Growth and Tech stocks, where a higher emphasis is placed on future earnings.

Now, whilst these moves in relative terms are unsettling, the absolute level of yields remain at historically low levels and this gives us confidence that they should remain supportive for markets but it is something that we will continue to monitor.

Pleasingly despite the backdrop, all of our portfolios managed to produce positive returns throughout the month and once again outperformed. Our overweight exposure to the UK as well as our specific exposure within the UK, which continues to be skewed towards smaller companies and value orientated funds, all contributed significantly.

 Portfolio Changes

During the month, we have made a change across our portfolios with the sale of the JO Hambro UK Opportunities fund. We have been invested in the fund for many years and this has been a positive contributor to returns over this time.  We have taken the decision to sell due to the fund breaching our internal risk controls, which ensure we are not overexposed to any one fund and maintain sufficient liquidity. We have reinvested the proceeds between the Royal London Sustainable Leaders and Liontrust UK Smaller Companies funds to maintain UK ‘quality/growth’ exposure.


The Boolers Investment Committee