The Year Ahead

Casterbridge Monthly Marketing briefing: From Pandemic to Endemic

For the Prosperity Wealth Portfolios – powered by Casterbridge

We are excited about the prospect of a positive year ahead, especially having navigated through another festive period dominated by the pandemic and its new Omicron Variant. So far, the news appears positive with this covid variant, whist proving to be highly transmissible is less virulent to those with the vaccine boosters. This appears to be an important milestone as we edge away from the pandemic and learn to live with covid as an endemic.

Market reaction over the month of December…

Markets briefly hit panic mode with a sharp increase in volatility through early December, which eventually subsided as we settled into the run up to Christmas. The month of December was positive for equities despite the early volatility: In Sterling terms, the broad global FTSE All World Index was up 1.59% through the month and up 17.75% over the 12-month period. Meanwhile, the UK’s FTSE 100 was up 4.61% for the month and over 2021, the index was up 14.30%. In Sterling terms, the more technology and growth biased US S&P 500 index was up 1.94% over the month of December and up 28.06% over2021.

Where are we now…

As we look ahead through 2022, it is clear that short term hurdles remain as the world continues to navigate Covid’s new variants; supply chain issues and associated inflationary pressures remain stubbornly high, the direction of travel for monetary policy makers is towards eventual tightening, though at different timings. All the while, Russia has quietly been amassing troops on the Ukrainian Border and the China / West relations continue to significantly cool, especially after the ‘diplomatic boycott’ of the Chinese Winter Olympic Games, scheduled to start in February 2022.

However, there remain strong medium to long term factors: monetary policy is still enormously accommodative by historic standards, the agreements made at the Glasgow COP 26 meeting, though slightly watered down, is expected to see a new wave of government spending on the green agenda to combat climate change. Jobs continue to be created and we have seen a stabilization in commodity prices, including oil and gas, helping to allay the fears of runaway energy price inflation, for now.

Those companies that survived the pandemic to date are in a strong position to capitalize on our base case that 2022 should see the world return to normality; although so much has changed through the pandemic that we do not expect ‘normal’ to look like 2019. We believe that the next few years will be all about the individual company and how are they positioning themselves for this new ‘World of Tomorrow’ post pandemic. These are companies that may sit in both the more traditional or new world camps, but are, in our view, positioned well for the medium to long term regardless.

What have we been doing for clients in the Prosperity Wealth Portfolios…

The latest portfolio changes in late 2021 saw a small reduction in bonds and cash, and an increase in equities. Even though there is the risk that further government restrictions and lockdowns across the globe knocks momentum out of the economic recovery, bonds continue to look expensive, and equities remain the best asset class for the potential for income and growth over the longer term.

As seen in recent rebalances, the Prosperity Wealth Portfolios have continued to reduce exposure to bond funds and increase the use of Alternative and Absolute Return strategies. In addition, we are taking advantage of the recent underperformance in emerging markets to increase exposure and introduce a new equity fund. The new fund which has been purchased for medium and higher risk portfolios, is highly concentrated with a limit of thirty-five companies and enables us to have a greater bias to faster growing companies.

Final thoughts…

It has been another tough year from a social perspective as we have all had to endure another year of Covid concerns. However, we do believe we are coming to the end of the pandemic crisis. Markets have this year been positive and we have participated in the positive performance and at the same time, ensuring we have navigated the volatility carefully, thoughtfully, and opportunistically. We remain optimistic over the medium to long term and whilst the short term will certainly throw some uncomfortable periods of volatility our way, we believe that our dynamic approach to investment management will continue to ensure portfolios are invested in the best medium to long term opportunities in the markets.

Important Information: This update is for information only and does not constitute advice or a recommendation and you should not make any investment decisions on the basis of it. The views and opinions within this document are those of Casterbridge at time of writing and may change without notice. They should not be viewed as indicating any guarantee of return from an investment managed by Casterbridge nor as advice of any nature. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. If you need further information, please speak to you Prosperity Financial Adviser.

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