Over the summer months equity markets have been on a roller-coaster ride, continuing the steep falls of the first quarter until mid-June then staging a decent rally.
Quite surprisingly, over this period the S&P 500 is unchanged while World indices are down a shade as European markets have weakened. The backdrop has taken a noticeable turn for the worse again over the past few weeks with increasingly unpleasant inflation readings and bond yields on the rise again.
Russian antics with the flow of gas through the Nord Stream 1 and 2 pipelines over the past few weeks has thrown the gas market into turmoil again and led to huge price increases as countries compete for available gas. In turn, this has led to a competitive race to forecast ever higher rates of inflation, a doubtful exercise in the current febrile conditions. Whilst this is August, the holiday month in Western Europe and prone to thin markets and exaggerated moves, a continuation of these prices will be hugely disruptive and the energy policies of Europe and, particularly Germany, will need to be completely rethought.
The Esk Global Equity Fund has gained marginally over the period but has seen a lot of volatility at the individual stock level. Possibly surprising has been the weakness in a number of the pharmaceutical and healthcare holdings, Roche, Stryker and GN Store Nord have all fallen by more than 10%, while Johnson & Johnson, Lonza and Chugai Pharmaceutical have also weakened. Gilead Sciences have rallied though and Sartorius stands out with a 25% gain (from very depressed levels). Within this sector we added to GN Store Nord in May and decided to close the position in Illumina, which was continuing to disappoint, while opening a new position in the Swiss dental services company, Straumann Holding. We have followed Straumann for many years, hoping for an opportunity to acquire a holding, with their shares down by around 50% from their peak in 2021 we were happy to make a start.
The mining and materials holdings all weakened with Novozymes, Rio Tinto and Shin-Etsu Chemical down by more than 10%. More positively, the luxury goods companies stood out with gains for LVMH and, notably for Hermes, which picked-up by 15%, we have not made any changes in this area. Among the staple goods companies, in late May we added to our holding in Remy Cointreau, which is doing well for us. In financials we added to Morgan Stanley and to T Rowe Price at the end of June after significant weakness in their respective share prices. Technology saw the greatest number of changes. We exited the position in Verisign in late May, considering that there were better opportunities amongst some of the other holdings after the weakness of the first half. We added to Alphabet, Intuit and Logitec at this time and to Mastercard at the end of June.
As we observed in the spring, this is not a normal cycle, inflation is a serious issue and Putin’s war in Europe adds considerably to the general uncertainty. We will continue with our long-term policy 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.