Hardest hit have been the technology sectors, led by a slump in Netflix, after more poor figures, the NASDAQ has sunk 10% since we wrote in March and by around 18% over the year. But it has not just been technology, the broader US market is down around 6%, while, in China, the Shanghai Composite has weakened again as they struggle with more COVID lock-downs. The MSCI World is down 6.5% over the period.

Esk has not suffered to the same extent as, being quoted in sterling, it has benefitted from the renewed strength in the US dollar. The dollar has gathered momentum again, after pausing in March, gaining a further 4% on its DXY Index, notably against the Japanese yen (just look at those interest differentials). 

Inflation (and rising bond yields) remain the key and, for now, the figures just keep getting worse: the US reading for March was 8.5%. We are probably at or close to the peak, it should begin to moderate from here on. The US Federal Reserve has kept up a barrage of hawkish commentary and a series of half-point moves are now expected over the remainder of the year to get the Fed Funds rate up to around 2.5% by the end of the year. Naturally, markets have moved in anticipation taking the US ten-year yield up to 2.9%, a significant move now, it is less than two years since it was trading around 0.5%.

We took an opportunity to add to the Fund’s newest holding, Remy Cointreau, when their stock price dipped in mid-April (along with the luxury goods companies). The Company has just reported Q4 figures which, on first look, are encouraging. Elsewhere, we have continued to add to the holding in Sartorius on weakness, they have also reported during the period, which beat expectations with strong growth in sales and earnings.

As we head through the quarterly reporting season many of our companies have reported and this has generally been positive. In Europe we have had figures from Novozymes and Heineken, good with positive performance since, along with Nestle and Unilever (particularly refreshing to hear better news from Unilever). LVMH reported well but have traded off a bit since, concerned about developments in the important Chinese markets, the pattern has been similar for L’Oréal. Among the technology holdings, Alphabet were a shade disappointing, YouTube is seeing stiff competition from TikTok, and their stock has turned down. Microsoft produced more excellent figures but have weakened with tech generally, Mastercard has been the best of them putting in a strong performance after good figures. We await the market’s response to Apple and Amazon.com figures but expect to see particular weakness in the latter after reporting a miss in their sales forecasts.

Against the backdrop of a cycle that is anything but usual, rising inflation and considerable uncertainty as to how much monetary tightening Western economies can take at present, not to mention the geo-political traumas in Europe, it is foolish to make predictions. We will continue to invest in an international portfolio of high quality companies, which we consider are, by far, the most likely to get through this period unscathed and in a strong position to grow.

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.