2022 will be remembered as a year when many of the things that we took for granted changed.
Decades of generally peaceful coexistence between the nations of continental Europe were shattered by Russia’s invasion of Ukraine, a conflict that cost many politicians their reputation, none more so than Angela Merkel, whose commitment to “Ostpolitik” (actively engaging in détente and trade with Soviet-Bloc countries) left her own country dangerously reliant on the largesse of Vladimir Putin. “You only find out who’s swimming naked when the tide goes out,” says Warren Buffett. Unfortunately for Germany 2022 bared the folly of Ostpolitik to the world.
Closer to home, Conservatives decided that they preferred to be known as “Tories”, rather than “Toadies” and elected a leader committed to traditional Tory values of lower taxes and smaller government. Whether you prefer a larger or smaller state, or higher or lower taxes it looks like you’ll get more choice when the next general election comes around in 2024.
Sadly, we lost our beloved Queen, who judging by the tributes from her own people, and the rest of the world is probably one of the most popular leaders of all time. I was moved and inspired by our new King’s comments to Liz Truss when he said, “it’s a moment I have been dreading [the death of his mother] as I know a lot of people have been, but we try to keep everything going.” Our late Queen “kept everything going”, through whatever adversity befell her, so It seems strange that so many organisations have rushed to cancel events in deference to a Queen who did the exact opposite. Our Royal Family and government gave clear directions to organisations and holders of events, sporting or otherwise, to carry on regardless.
For financial markets there has been no business as usual. Some of those expensive American companies that have been trading on bloated price earnings ratios have seen their share prices tumble, which is why the S&P500 Index, a measure of the returns from the USA’s largest quoted companies, is experiencing it’s own “annus horribilis”. Rising interest rates are part of the reason because they reduce the value of companies that are promising “jam tomorrow”, including a lot of the high growth organisations that have been so popular in recent years.
Those same rising interest rates designed to curtail price increases have wreaked havoc in bond markets. Long dated gilts (bonds issued by the British government), supposedly one of the safest assets in the world, have shed 36% of their value in 2022. I have been warning about the risks in long dated bond markets for a while.
Fortunately, holding short-dated T-Bills in the lower risk segments of Courtiers funds has meant that we have dodged the bullet of collapsing gilt prices. We have seen some decline in our equity holdings with global equity values as measured by the MSCI World Index down 14.8% in the year to date. Our Cautious Fund is down just 2.9%, our Balanced Fund 5.45% and our Growth Fund 8.57%. Meanwhile, our UK Equity Income and the Global (Ex UK) Equity Income Funds are down 13.05% and 5.29% respectively. Our own Bond Fund with its short duration is one of the best performers of the year and has risen by 1.68%.
2022 is not proving a great period for investors worldwide but on a more positive note, the fundamentals for the equities that we hold in our funds look attractive, which augurs well for future returns. The forward PER (price earnings ratio) of the developed market shares in our Multi-Asset Funds is currently just 7.55. To put this in context, PERs above 20 are seen as expensive, and a lot of the companies that form a substantial proportion of the S&P 500 index have in recent years traded at around 35 times earnings. PERs have adjusted downwards this year and given us the opportunity to pick up some decent companies at very low valuations. We will cover these topics in more detail at our December seminars, invitations to which will be going out shortly. Please try and get along if you can, but in the interim contact your Adviser if you have any queries.