November 2022

 “A fool and his money are lucky enough to get together in the first place.  Gordon Gekko”

November was already shaping up to be an interesting month – Zuckerberg’s apology for the $600 billion bonfire of shareholder value at Meta set the tone – when news broke of first a liquidity then a solvency crisis at crypto darling FTX.  By the time the smoke cleared £30 billion had disappeared and many high-profile investors were left shaking their heads at what at happened.  Exactly where the bulk of the money went is unclear (the founder obviously didn’t squander it on personal hygiene or wardrobe), but at least $40 million went to political friends in high places. Cue a small bout of cross-market contagion and further meltdown across the cryptoverse.  At the time of writing the impact on the overall financial system seems contained but it is extremely likely that this is not the last casualty we’ll see in this sector.  For now, we’ll stand by what we’ve said before, we can believe the technology underpinning crypto undoubtedly will be as transformational as the internet was 25 years ago, without going along with the loopy valuations of individual assets.

Elsewhere markets settled into a positive groove despite rate hikes, politics (UK budget) and continuing uncertainty about China and its extreme affinity for locking down its citizenry.  The main driver for the constructive sentiment is the growing belief that not only has the peak in inflation passed but it is in decline, a trend that would likely see the end of the central bank tightening cycle.  While too early to declare total victory the Fed has already indicated an end to the supersize raises we’ve seen this year, while dissension within the ECB indicates a lack of clear consensus for the future pace of hikes.  To be sure, economic data continues to present a picture of generally slowing growth while employment remains strong, and on that basis some caution is warranted.  With this backdrop USTs and Bunds had steep rallies further inverting yield curves, while equity markets rallied.

It was an active month in the financial services sector as well.  The UK government indicated that it will issue new guidance on relaxing ring fencing and other regulations in the coming weeks.  Meanwhile the drama continued at Credit Suisse as doubts emerged about the success of its current equity raise, which in turn fuelled volatility in its credit securities.  Otherwise the overall constructive tone fed a rally across asset classes with the equity index building on the previous month’s strength to finish 8% higher while credit spreads tightened significantly.  For the month the fund’s A shares rose 2.8% driven by credit with a +265bps in gross performance contribution, while equities added +22bps.

Looking ahead to December we have several key central bank meetings whose outcomes have been telegraphed to the market already while data will once provide important indications as the pace of economic activity and inflation.  From the portfolio’s perspective we continue to be optimistic about the near term although we remain cautious about extending the “all-clear” ahead of Q1.