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Caerus Select Commentary - July 2022

Date: 23 August 2022

Market review

Image of a digital graphIn July, evidence of a global slowdown in economic growth continued to mount. Indeed, the US economy delivered a second consecutive quarter of declining growth forcing the US Treasury to quickly rebut the notion of an economic downturn due to the ongoing strength of the US jobs market. As a result of the economic backdrop, investors began to forecast that the US Federal Reserve (Fed) would need to start cutting interest rates again by next year. This provided a huge boost for both equity and bond markets in July.

Despite the Fed delivering a second consecutive 0.75% interest-rate increase and the European Central Bank (ECB) making a 0.5% increase to European interest rates, in equity markets there was a marked change in investor sentiment.

In contrast to the first half of the year, investors moved away from ‘value’ stocks, companies whose share price is low relative to their value, and into ‘growth’ stocks, companies whose valuations are based upon the rate at which they’re expected to grow their profits in the future.

In the US, equity markets shrugged off the interest-rate rise and enjoyed their best month for two years. The US was the top-performing regional market in July thanks to the outperformance of technology and consumer discretionary (companies that sell goods and services that are considered non-essential by consumers) stocks.

Both sectors are heavily represented in the ‘growth’ biased US equity market which accounts for the substantial outperformance of US equities in July, a month when the average fund in the Investment Association (IA) North America sector delivered a gain of 8.1%.

Meanwhile, smaller company stocks also outperformed their larger peers in July, especially in the UK, as investors found their risk appetite returning. Consequently, the average fund in the IA UK All Companies sector delivered 5.8% in July.

European equity markets also rallied strongly in July, despite the less than positive economic outlook for the energy-strapped region. During the month, the euro declined to be valued at one-to-one with the US dollar, in large part due to its reliance on Russian energy. Even so, the average fund in the IA Europe ex UK sector delivered 5.7%.

Elsewhere, emerging markets declined slightly. This was chiefly due to the mounting problems in China’s huge property sector. During the month, the average fund in the IA Global Emerging Markets sector delivered a small loss of 0.3% while the average fund in the IA China/Greater China sector declined 8.1%.

Bond markets also enjoyed a vigorous bounce thanks to expectations that central banks would soon need to relent from their current course of steep interest-rate rises. As a result, the average fund in the IA UK Gilts sector returned 2.5% in July while corporate bonds (issued by companies) delivered greater returns, especially more risky bonds with higher yields.

(All performance figures in sterling terms and rounded to one decimal point.)

Performance review

Image of a woman on the phone with a laptopThe Caerus Select Portfolios delivered attractive positive returns in July with the higher-risk portfolios delivering greater gains due to their higher exposure to equity markets.

Fixed-income markets also delivered robust returns, despite interest-rate increases from both the Fed and the ECB.

The developed market equity component of the portfolio delivered positive absolute returns.

The top performers in July were the Allianz Continental European Fund, up 12.9%, and the Quilter Investors US Equity Growth Fund, managed by JP Morgan, which gained 8.2%. Both funds benefitted from their exposure to rallying technology stocks.

The Janus Henderson European Selected Opportunities Fund was also ahead of its benchmark thanks to its financial and communication services sector holdings.

Meanwhile, both the Fidelity Asia Pacific Opportunities and the Invesco Asia funds, struggled due to their Chinese equity exposure. The Quilter Investors Europe (ex UK) Equity Income Fund (managed by Schroders) was also behind its benchmark index due to an underweight in industrial stocks, which were a big winner in Europe, while elsewhere the BlackRock Gold & General Fund also declined.

All our UK equity holdings delivered attractive positive returns and all, with the exception of the Jupiter UK Equity Income Fund, were ahead of their benchmarks.

The BlackRock UK Fund was July’s standout performer in the UK portfolio; it gained 7.6% thanks to the recovery in ‘growth’ stocks. Meanwhile, the Artemis Income and the Artemis UK. Special Situations funds were also especially robust performers.

In July, emerging markets equity was the only asset class to decline. While our broader emerging market holdings modestly outperformed their respective benchmarks, the Janus Henderson China Opportunities Fund declined 9%.

The fixed-income basket was stronger in July. All holdings made progress, especially the Invesco Corporate Bond and the Fidelity Strategic Bond funds, as corporate bonds outperformed government bonds. Even so, the iShares UK Gilts All Stocks Index still delivered a gain of 2.5%.

The alternatives holdings made solid ground in July with only the Jupiter Global Equity Absolute Return (GEAR) Fund declining slightly. This was more than offset by the gains enjoyed by the Allianz Fixed Income Macro Fund (up 3.9%) and the PIMCO Dynamic Multi Asset Fund, which gained 2.5%.


July was a month when ‘bad news’ was ‘good news’ with weakening economic numbers leading investors to start expecting interest-rate cuts from the US Fed as early as next year. Consequently, the portfolios were rewarded for both their equity exposure and their higher allocation to fixed-income assets following June’s portfolio rebalance, as bond markets performed strongly in July.

Despite July’s rally, fixed-income assets continue to look attractive when compared to recent history. Meanwhile, government bond prices have retreated so much that they now provide more attractive yields and greater potential for portfolio protection, especially in this kind of environment.

Even so, risks remain. Global economic numbers continue to slow, and consumer confidence is ebbing amid rising inflation and interest rates. Meanwhile, Europe’s drive to reduce its reliance on Russian energy could easily tip the region into an economic downturn, especially as winter draws near.

The impact of slowing economic growth and high inflation on company profits will vary by region and by industry, but company earnings have, so far, held up better than many feared.

Performance summary (%)

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Stuart Clark

Portfolio Manager


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