Sharing our convictions

Unglamorous stock research, resisting the whims of the markets, and preparing for the worst can be downright boring. But it’s a great way to find quality international companies that can help reduce portfolio risk and improve downside protection – exciting results during these uncertain times.

Escalating geopolitical tensions have contributed to a volatile past week for investors, but uncertainty regarding central bank action continues to dominate the bond markets, with one investment bank now predicting nine straight hikes from the Fed beginning at its March meeting.  

So far this year, the spread between two-year and 10-year US Treasury yields has declined from 77bp to 51bp.

Yield curve shape and yield curve change are often good predictors of the state of the economy and its outlook.

As 2021 wore on we became increasingly concerned that the disconnect between asset prices, economic fundamentals and monetary policy was becoming more acute.

Last week investors were faced with a double whammy of monetary tightening from the Bank of England (BoE), which on Thursday hiked interest rates by 25bp and announced the gradual unwind of its £20bn corporate bond portfolio.

With inflation soaring and the economic recovery looking more fragile, we look at three famous central bank policy errors to demonstrate why they can be so dangerous for investors, and consider how a fixed income portfolio can be strengthened against the risk.

For our Q1 fixed income event, Mark Holman, portfolio manager at Vontobel boutique TwentyFour Asset Management, provided an update on the firm’s flagship, global unconstrained strategy, the Vontobel Fund – TwentyFour Strategic Income Fund.

For fixed income investors, the start to 2022 has been trickier than any we have experienced for many years, but we think this difficulty is to be expected and aligns with our macro view.

After a challenging January, which saw markets beginning to come to terms with a very hawkish Fed pivot and rising Russia-Ukraine tensions, it is worth taking stock of the moves we have seen in fixed income over the last few weeks.

Yesterday was a noisy day for the Bank of England (BoE) and European Central Bank (ECB), usually an undesirable situation for market participants.

The first month of 2022 has passed, and it’s been quite a roller coaster for broader equity and credit markets, with volatility climbing to its highest level since January 2021.

After a relatively quiet period during the closing weeks last year, the primary ABS market has enjoyed a solid start to 2022.

TwentyFour Portfolio Manager, Charlene Malik, discusses market conditions in Q4 2021 and provides her outlook for the new year.

TwentyFour Partner and Portfolio Manager, Gordon Shannon, discusses how the short term bond strategy has performed in Q4 2021 and provides his outlook for the new year.

Powell’s hard line may have surprised investors, particularly in light of recent market volatility and increasing geopolitical risk in Eastern Europe, but the Fed’s fear of prolonged higher inflation looks to be trumping those concerns.

TwentyFour Partner and Portfolio Manager, Douglas Charleston, explains how ABS markets have performed in Q4 2021 and provides his outlook for the new year.

If 2021 was a bad year for global bond returns, it follows there were few natural shelters to be found within fixed income from the brunt of inflation and rates-driven volatility; the Barclays Global Aggregate Index (a widely used broad measure of bond performance) returned -4.7% in USD terms, while European investment grade credit returned -1.1% despite credit spreads tightening over the course of the year.

Inflation was the dominant theme across financial markets in 2021, and we think it is likely to be a big driver of returns again in 2022.

It has been a very interesting start to the year in the rates sector of the market.

Électricité de France (EDF) shares fell by as much as 25% on Friday morning after the French government announced exceptional measures to limit the impact of high electricity prices on French consumers, at the expense of the energy provider – the shares are down over 30% since start of December. 

The first two trading weeks of the year are coming to an end and unlike previous years they have been packed with activity.

As we enter the third year of the pandemic, most market participants are asking themselves (once again) if this will be the year when supply chain issues finally abate.

Given the swiftness of the Fed’s pivot we think risks are tilted towards the central bank doing more and not less. We wouldn’t even rule out a 50bp rate hike at some point.