Alex Harvey, CFA - Senior Portfolio Manager & Investment Strategist
After a challenging first quarter markets roared back to life in April as the punctuated ceasefire and US-Iranian dialogue saw animal spirits take hold and risk markets rally strongly. The geopolitical narrative gave way once again to the powerful tech and AI theme that has powered global markets for much of the past few years. In the Middle East little of note had really changed. There were signs that both sides were seeking an end to the war but the Strait of Hormuz remained effectively closed, episodic bombing in Lebanon continued and the war in Ukraine raged on. Brent crude ended the month still nearly double where it started the year, and with futures market still pricing $100 oil through September it is hard not to think that corporate earnings and growth will come under pressure. Nonetheless, investors have welcomed this period of relative calm during Trump 2.0, and not worse news is good news.
Pretty much every major asset class and currency (versus the dollar) ended higher in April. Global equities posted their 10th best calendar month return in 50 years, gaining 9.4%. Global value came in a poor last place in the factor rankings as growth did what it says on the tin, the former adding 6.9% the latter 12.3%. Quality middled at 9% but there is overlap with the growth cohort and more defensive quality (as measured by minimum volatility equities) gained 0.8%. Quality comes in many different forms as recent months have shown. Tech led the charge with the Nasdaq and Mag 7 both up north of 15%. Asian and EM equities more broadly posted similar returns, aided by the likes of SK Hynix, the South Korean semiconductor and chip manufacturer, which was up over 60% and helped the KOSPI index of Korean equities to gain 30% in April. In such a strong risk market one might expect bonds to give up ground, but despite some rotation the easing up in forward inflation expectations helped buoy bond prices. US treasuries were themselves 0.1% lower, but global treasuries and global aggregate bonds held their heads above water and higher yielding corporate and emerging market credit added more than 2% as spreads tightened. Real assets (in the form of listed property and infrastructure) also gained, as did alternatives more broadly. In tandem with treasuries, gold also returned a modest negative 0.7%, a surprisingly good outcome for the yellow metal in such a strong month for risk assets, and once again challenging its conventional diversifying qualities. Brent crude and natural gas both fell over the month, although not really by that much for the upside seen elsewhere, whilst commodities more broadly gained on the implied optimistic outlook. Pleasingly for the UK, the ‘special relationship’ with the US found firmer footing after the success of King Charles’s visit. President Trump’s admiration for the King and late Queen is well known, and the world welcomed a reprieve from the enduring pugnacious White House rhetoric as his visit passed without major incident. Trump himself survived yet another maniacal would-be assassin at the annual White House correspondent’s dinner, which he was attending for the first time as President just a few days before the Royal visit.
We go into May on a strong footing, which is very welcome. In our portfolios, as ever, we remain well diversified but generally risk-on today. Despite lofty valuations reappearing in some corners of the market, we recognise that today more than ever in this era of rapidly oscillating newsflow it is important to stay invested. We find our downside protection through maintaining a broad asset mix and a diversified, style blended global equity allocation comprising best in class active strategies. Although active management continues to face challenges, the ever-present high concentration at country and sector level and widening dispersion of single stock returns can only improve the active managers’ opportunity set and affords a higher margin of safety in the even that headline index returns pause for breath.
