May 11, 2023

Manager Comments – 30 April 2023

Inflation was a cause for concern in 2022. Our expectation is for inflation to decrease to 4% easily, and we hope to achieve a target just above 2% without experiencing a double-dip where inflation rises again before decreasing. The question remains whether central banks will be satisfied with 4% inflation or continue pushing to reach the 2% target.

To control inflation, we rely on central bank interest rate hikes to slow down the economy. Although achieving a 4% inflation rate is expected to be manageable,reducing it to 2% will be challenging, and we should prepare for this. The market may underestimate the Fed’s commitment to reaching this target, which may reflect in the pricing of securities. Therefore, we should expect a small recession, possibly occurring late in 2023 and continuing into most of 2024, rather than a soft landing. While slowing inflation may appear harmless, it can have unpredictable consequences, such as the recent banking mini-crisis. As interest rates continue to rise,some corporations may face severe difficulties, and the Fed will be cautious in its approach. It’s worth noting that headline inflation in most developed nations has halved since last year, and core inflation has decreased as well. However, the labour market remains tight, which complicates inflation control.The current inflation rate of 4% is too high for the Fed, and it’s likely to increase interest rates. There’s evidence to suggest that the market often underestimates the Fed’s actions. As multi-asset managers, we examine various markets and shift our asset class focus accordingly.


Equity markets are not inexpensive, especially in the US, where valuations appear unattractive. Company profit margins have decreased from their 2022 peak and maybe below average. China’s margins seem much better as they open up their market, making Chinese equity an appealing option. Nevertheless, political risks in Chinaand Hong Kong make us wary of Asia. The semiconductor industry has been on a bull run, but current developments are concerning. Therefore, we’re looking forequity opportunities outside of the US and will be monitoring the situation carefully. We’re neutral on US equity and prefer quality factors over value or growth.


Bonds appear more favorable than equities in the current environment. However, bonds aren’t significantly better at the moment and carry the risk of sudden draw-downs, which we’re aware of. Therefore, we’re slightly increasing our bond exposure.

Real Estate

Most real estate investment trust (REIT) shares have dropped by 30% to 50% over the past three years, which doesn’t align with the valuation figures published by REITs. Hence, we’re avoiding property investments until the situation resolves.


Lastly, we had a successful last quarter for most assets that declined in 2022. This serves as a reminder that staying invested in the long run is often a better strategy.