MARKETS IN A NUTSHELL - MAY 2022

With developed market equities ending flat and emerging markets slightly up, one could be forgiven for thinking that May was uneventful. It was in fact another volatile month that included the markets’ worst one-day return in nearly two years. This was followed by a final week rally, driven (ironically) by hopes for more dovish US Federal Reserve policy on prospects of slowing growth. Continued market volatility should be expected in the near term, given the myriad uncertainties around persistent inflation, rising interest rates and slowing economic growth.

Developed market bonds were little changed as yields retraced modestly from their mid-month peak as investors fretted over whether the current forward yield curve may already be discounting sufficient interest rate increases to quell inflation expectations.

The oil price posted double-digit gains for the fourth time in six months, driven by supply uncertainty given the prospect of additional Russian sanctions on already suppressed inventory levels and rising demand. Prices for gold and silver declined, now having given up much of their year-to-date gains. Rising real interest rates have increased the opportunity cost of holding these yield-free precious metals. Given the elevated risk environment however, they continue to serve a critical diversification purpose in the Foord funds.

The Foord International Fund delivered another good month, with a year-to-date US dollar return of 3.2% against the global equity index -13.0%. The fund’s conservative, absolute-return approach is protecting investor capital as expected. The Foord Global Equity Fund also outperformed again as the fund’s core investment strategies continue to come good.

In South Africa, equities were slightly lower with a steep fall in precious metals miners and pressures on industrial stocks, given weakness in the consumer discretionary sector. Financials outperformed on strength in the banks. The sizable investment in Naspers and core holdings in FirstRand and Standard Bank were the largest contributors to performance in the South African component of the Foord funds. Luxury goods company Richemont detracted on the slowing Chinese economy as did some consolidation in a clutch of quality SA Inc. mid-caps following strong recent gains.

The All Bond Index rose as the yield curve steepened, with yields on the short to medium-term maturities moving marginally lower. The core holdings in the 3 to 7-year and 7 to 12-year buckets outperformed and continue to offer attractive real yields.

The rand ended the month stronger against the US dollar after weakening mid-month. Despite continued near-term support from the positive trade balance, the currency is vulnerable to a reversal in commodity export prices and rising US interest rates.

The funds are carefully balanced with meaningful allocations to securities best placed to provide long-term inflation beating returns. The funds exhibit tactical market hedges to reduce near-term market risk and hold ample liquidity with which to seize the long-term investment opportunities that volatile markets typically provide.