Some of the volatility has come out of equity markets this month (though it has picked up again in the fixed interest and commodity markets).

Stocks continue to be blown about by Russia’s aggressive actions in Ukraine along with rising interest rates and inflation, but over this period American stocks have gained around 3.5% while European stocks have edged just a shade lower. Chinese markets continue to have problems, mainland and Hong Kong indices are noticeably weaker again.

The US Federal Reserve finally hiked rates by 25bp and the accompanying commentary from Chairman Powell was notably hawkish, talking of seven more increases this year and the possibility of some being 50bp. The Bank of England also increased the base rate by a further 25bp, though the voting and commentary were rather more cautious than the Federal Reserve. US Treasuries and UK Gilts have reacted strongly to reflect the change in outlook and inflation, taking the US ten-year yield close to 2.5% and the UK to 1.7%, levels not seen for a number of years.

The Fund has gained around 4% over this period, assisted by the continuing strength of the US dollar, and we have added one new holding to the portfolio. For some while we have been looking for an opportunity to add some exposure to the spirits industry and the 22% fall in the price of Remy Cointreau stock this year gave us just such an opportunity to make a start. Cognac is an interesting category with supply and ageing constraints, the US and China account for more than 70% of Remy’s sales, it has the high margin and quality that we look for in investments. The initial position is modest, we will seek to add to it on any further weakness.

Readers of these commentaries will know that we have not been hyperactive over this first, volatile, quarter of the year, preferring to let the quality of the companies in which we invest show its mettle. We do however keep a watch on the transactions that we have undertaken (along with all the holdings!) to see if they have added value. Into the ‘could have waited longer’ category go the additions to Nidec Corp (manufacturer of small (tiny) precision electric motors, and Sartorius (precision instruments and components for laboratory and industrial use), both of which could have been acquired at (even) lower prices if we had waited. The switch out of M3 Inc. into Chugai Pharmaceuticals has been a success with the former falling further and the latter gaining. The additions to Ferrari and Logitech have done little so far, while adding to and the new position in Remy Cointreau have been a definite positive.

There is still considerable uncertainty in markets. We expect the Federal Reserve to continue to raise rates multiple times over the year, how far longer-term rates move is more open to question and must depend more on the persistence of inflation. The geo-political backdrop is bad, we feel that Putin has probably over-reached himself, but who knows what depths he might descend to. How long this war drags on, how elevated energy prices and inflation remain will also have a material impact on growth rates, most notably in Europe.

The current international disposition of the Esk Fund is shown below. There are 47 holdings in the portfolio at present, in our normal 45/50 range, with an overall beta of 0.93. The greatest exposure is still to American markets and the US dollar. As stated before, we do not invest in Russia or any other such countries, see chart, right.


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.

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