Market assessment – Premier Miton Multi Manager team

David Hambidge

Premier Miton Multi-Asset Global Growth Fund
David Hambidge, fund manager of the Premier Miton multi manager fund range, provides his thoughts on current market conditions.

While we were never in the inflation is transitory camp, we were certainly not expecting the kind of readings we have seen this year which have confirmed prices in the US, UK and Eurozone are increasing at their fastest rate in four decades. Not surprising then that when the latest US CPI data registered a decline for the first time since 2020, markets breathed a collective sigh of relief.

Interestingly, following a horrendous first half of the year, longer dated government bond yields have declined quite significantly over the last few weeks. That might seem strange given that until the latest US inflation numbers both the CPI prints and strong employment data suggested that prices are likely to stay way above central bank targets for a considerable length of time.

Of course the decline in government bond yields may be down to the market pricing in a significant slow down in economic activity next year (we think this is likely), but that doesn’t explain the rally we have also seen in riskier assets such as corporate bonds and equities. It may be that bearish sentiment towards the end of the second quarter just got too extreme and that we are just witnessing some sort of mean reversion. However, what is certainly true is that equities and government bonds in many countries and regions remain positively correlated and this causes all sorts of problems for hybrid equity/bond (60/40 etc.) models that have been so reliable over the last forty years or so.

While the recent lower US inflation number is to be welcomed, it is only one set of data and the Fed and many other central banks are still a very long way from getting prices under control. In the US, CPI at 8.5% is over four times the Fed’s target while in the UK and Eurozone, inflation is likely to increase further in the short term.

Against this backdrop, it seems very likely that interest rates will have to increase further and monetary conditions will continue to tighten. This has been a headwind for both equities and bonds this year and may continue to be so for several months.

Against this backdrop, our portfolios remain relatively defensive with equity allocations below their historic norm, while we continue to favour allocating away from the US where both equities and the Dollar appear overpriced and overowned. The UK remains one of our favoured markets although valuations are attractive in many other areas including Europe, which has suffered particularly hard from the war in Ukraine and Emerging Markets, which have not enjoyed tighter US monetary policy and a surging Dollar.

Within our bond portfolios, we have not materially changed our exposure although we did marginally increase our allocation to emerging market debt (EMD) in June. EMD has had a truly dreadful year for a number of reasons but at least we are now being compensated with a very significant increase in yield. The majority of the duration in our bond portfolios emanates from our EMD exposure but elsewhere duration remains very low with a meaningful exposure to floating rate debt. These assets haven’t been immune from the poor sentiment in corporate bond markets generally but we expect higher coupons over the next year or so as interest rates continue to climb.

UK commercial property has been one of the stand out asset classes of 2022 so far although even here July saw a fall in prices for the first time since March 2020. Having increased our exposure quite meaningfully early last year, we have taken some profits recently. However, the areas we favour which include care homes, primary healthcare and student accommodation continue to offer attractive yields with dividends expected to increase over time.

Finally, with government bonds no longer the reliable diversifiers they once were, alternative assets remain an important part of the overall portfolio mix and we expect this to remain the case for the foreseeable future. We own a number of complimentary strategies which not only have a low correlation with each other but more importantly, both equities and bonds.

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Risks

The value of stock market investments will fluctuate, and investors may not get back the original amount invested.

The performance information presented in this insight note relates to the past. Past performance is not a reliable indicator of future returns.

Government and corporate bonds generally offer a fixed level of interest to investors, so their value can be affected by changes in interest rates. When central bank interest rates fall, investors may be prepared to pay more for bonds and bond prices tend to rise. If interest rates rise, bonds may be less valuable to investors and their prices can fall.

Property values can rise and fall sharply depending on the strength of a country’s economy.

In certain market conditions companies may reduce or even suspend paying dividends until conditions improve. This will impact the level of income distributed by the fund.

Equities (shares) can experience high levels of price fluctuation.

Alternative investments typically behave differently to traditional investments such as bonds and equities. They can include a range of assets such as specialist lending, private equity, hedge funds and gold. Adding alternative investments to a portfolio can help to make it more diverse but can also make it more volatile.

Forecasts are not reliable indicators of future returns.

IMPORTANT INFORMATION:

For Investment Professionals only. No other persons should rely on any information contained in this fund manager insight.

Whilst every effort has been made to ensure the accuracy of the information contained within this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice. Reference to any particular stock or investment does not constitute a recommendation to buy or sell the stock / investment.

Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

For your protection, calls may be monitored and recorded for training and quality assurance purposes.

Issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227. Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

007502/080922

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This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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