Quarterly Investment Report – April 2023

Playing it Safe

So far, 2023 has been better than expected, with a broad range of assets delivering healthy returns in the face of weak confidence.

Our April report examines the key themes driving these returns and the outlook.

Summary of our latest insights

• Approaching peak interest rates – the new dilemma of trying to control inflation against fears of financial instability. We expect interest rates to peak soon and remain at these levels for the remainder of the year, provided there is no severe economic stress.

• Historically, slower lending activity has led to weaker growth – the U.S. banking system is the beating heart of the global economy. Historically, reduced lending activity (tighter credit) has led to weaker economic growth and corporate earnings.

• Temporary factors have driven recent equity returns – year-to-date returns led by multiple compression (lower bond yields), not earnings, that fell -1% year-to-date. We see increasing risks to equity valuations if earnings miss expectations, e.g. Tech investor lessons of 2022.

• Support for equities may persist – the tailwinds driving better-than-expected outcomes may persist, supported by China’s reopening, low unemployment, and swift policy intervention against financial instability.

• Increasing defensive assets by taking profits across growth assets – we are balancing both upside and downside scenarios. We have increased fixed interest allocations (overweight) by taking profits across global equities (underweight) that have outperformed in the face of downward pressure on earnings.

^{General Advice Warning: Any comments made in this communication do not consider your objectives, financial situation or needs. Before acting on any general advice, consider whether it is appropriate for you.}