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Cirilium Active monthly commentary - November 2021

Date: 16 December 2021

Market review

The positive momentum across global stock markets seen over the previous two months came to an end in late November, as concerns mounted over high inflation and the Omicron variant of the coronavirus. The latter particularly rattled markets as news circled that existing vaccines may not be as effective given the unusually high number of mutations present; this sent equity markets lower and government bond prices higher.

Consumer price inflation increased to 4.2% year-on-year in the UK in October, up from 3.1% the previous month, and 4.9% in the eurozone, fuelled in particular by higher energy prices. Sterling also weakened, falling 2.9% against the US dollar, 3.6% versus the yen and 0.9% against the euro.

At the start of the month, the Bank of England’s (BoE) Monetary Policy Committee voted to keep its policy rate at 0.1% and to continue with its existing quantitative easing programme. This came as a big shock to financial markets following a series of speeches from the governor, Andrew Bailey, that appeared to be priming the market for an imminent rate hike. The inaction from the BoE prompted a sudden fall in gilt yields (meaning their prices rose), while equity markets also took the news positively.

The portfolios suffered modest losses against a backdrop of turbulent markets.

However, by the end of November, the FTSE 100 and FTSE All-Share indices had given up these gains; both declined by 2.2%. The MSCI Europe ex UK Index also fell during the period, losing 1.7%.

The German 10-year bund yield ended the month 0.25% lower at -0.35% (meaning prices rose), while the UK 10-year gilt yield fell a similar amount as concerns over the negative impact Omicron might have on economic activity weighed heavily late in the month.

Across the pond, inflation continued to increase, reaching 6.2% year-on-year in October. The threat of more sustained inflationary pressures prompted US Federal Reserve (Fed) chairman Jerome Powell to hint at speeding up the tapering of asset purchases, which would open the door to earlier rate rises than previously expected.

Meanwhile, the US labour market continued to look strong, with job openings dropping a little but still close to all-time highs, while more than 500,000 workers were added to payrolls in October.

Even so, the labour force participation rate in the US remains a conundrum, sitting stubbornly 2% below pre-pandemic levels, despite the record number of job openings and elevated wage growth.

Volatility has picked up in both equity and bond markets as investors digest the implications of Omicron alongside the risk of tighter US monetary policy. The MSCI USA Index returned 2.6% over the month, although the positive performance was entirely driven by the currency effect as the US dollar was stronger versus sterling, while 10-year US Treasury yields slid lower.

The MSCI China Index lost 2.6% through November as sentiment towards the region remained weak. Oil also had a rocky month, drifting lower before suddenly plummeting on news of the Omicron variant to end the month down almost 20%, at just above US$70 per barrel.

(All performance figures in sterling terms and rounded to one decimal point, unless otherwise stated.)

Note: Currency hedging of foreign investments dampens the effect of currency fluctuations on returns and reduces the volatility of your investment. Under most circumstances, we currency hedge foreign currency bond holdings, except in cases where the foreign currency exposure is an explicit return-driver (eg emerging market local debt exposures).

Performance review

The Cirilium Portfolios ended November nursing small losses which were mostly incurred in the last few days of the month following news of the Omicron covid variant and ‘hawkish’ comments from the Fed as to speeding up the pace of central bank tapering.

For the Cirilium Conservative Portfolio, November’s small decline was split evenly between our equity and fixed-income holdings. Government bonds, where we have a low exposure, were one of the few fixed-income asset classes to end the month higher. Although they outperformed, global government bonds are still down more than 1% this year.

In the other portfolios in the range, equities were largely responsible for the small losses suffered. On the plus side, weakness in the pound pared back some of our equity losses by increasing the value of returns from assets denominated in overseas currencies.

A small minority of our underlying managers also struggled. This included the Granahan US SMID Select, the Premier Miton UK Value Opportunities and the recently added River & Mercantile European funds.

We introduced the Martin Currie European Unconstrained and the R&M European funds.

For Granahan and Premier Miton, this was largely due to the poor performance of a select few stocks while for R&M it was the bias towards value stocks, which are more sensitive to potential lockdown restrictions.

It was a busy month for investment activity. We continued taking profits from funds which had performed strongly including Granahan US SMID, HabourVest Global Private Equity, Montanaro European Income and Polar Capital Automation and AI, among others.

In addition, we switched the Blackrock UK Equity Tracker into the Invesco FTSE All-Share ESG Climate Fund. The rationale being to reduce climate-related risks from our tactical passive exposure.

We also added two new holdings, the Martin Currie European Unconstrained and the R&M European funds. The former was financed through the disposal of the Crux European Fund while the latter was funded through the sale of the SPDR S&P European Dividend Aristocrats ETF.

Within fixed income, the AQR Global Aggregate Bond Fund announced its closure. We liquidated our holding and reinvested across a number of our existing holdings including the Wellington Opportunistic Fixed Income, the WF Climate Investment Grade and the Fair Oaks Dynamic Credit funds.

In the Cirilium Conservative and Cirilium Balanced portfolios, exposure was increased to the Janus Henderson Asset Backed Securities Fund from our cash holdings. In the Cirilium Moderate Portfolio, the Premier Miton Monthly Income Bond Fund was also added.

In the alternatives portfolio, the CZ Absolute Alpha Fund, a long-short equity strategy also announced closure. The two fund closures in November highlight the tough conditions facing many specialist managers but we have a pipeline of interesting new ideas in which to invest such disposals.

In the Cirilium Moderate Portfolio, we participated in the Pantheon Infrastructure (PINT) IPO due to the opportunity to access the asset class at a lower valuation and, importantly, via a manager we already hold in high regard given our long-term investment in the Pantheon International private equity trust.


While November brought renewed pandemic concerns and Fed signals of an earlier withdrawal of monetary support than expected, it hasn’t changed our outlook for 2022; namely, we expect to see an ‘easing off the accelerator’ for markets rather than a ‘stamp on the brakes’.

Although we haven’t dismissed the potential disruption that could be wrought by Omicron, we believe the worst of the pandemic is behind us and that, rather than persisting with ultra-loose monetary policy, it’s time for the US Federal Reserve to start removing stimulus.

While we’re alert to the risks engendered by the investment theme of ‘peak everything’ – namely life without epic levels of fiscal and monetary stimulus – we still expect economies and corporate earnings to grow in 2022, albeit at a slower pace than we’ve seen this year.

There are, of course, risks to our outlook. For example, if the new covid variant is able to evade existing vaccines – which seems unlikely – there could be another short-term economic impact. This is reflected in our slower investment into value strategies, which are typically more sensitive to lockdown restrictions. However, this should be seen as a sign of prudence on our part, not an attempt to somehow ‘time’ the market.

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Paul Craig

Portfolio Manager

Hinesh Patel

Portfolio Manager


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