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Market and Fund Performance Commentary.

April 2022.

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Market Commentary.

Market Overview, April 2022.

Market conditions in April reflected the trends that shaped the first quarter. Equities and bonds tumbled, while commodities climbed. The ongoing conflict in Ukraine, concerns around inflation, rate hikes and expectations that the US Fed will formally announce the start of their balance sheet runoff in May kept risk aversion at elevated levels.

Global equities posted their largest one-month decline since March 2020 and most major equity markets delivered their poorest monthly performances of 2022. Developed-market shares fared worse than emerging markets.

The selloffs in UK and mainland Chinese equities were comparably shallow against the broad-based decline. Hong Kong shares fell by a bit more, followed by European equities, while Japanese and US shares suffered steeper losses. Growth-oriented equities tumbled by considerably more than value-oriented shares.

Government bond interest rates increased across all maturities in the UK, eurozone and US during April. Generally, longer-term rates increased by more than short-term rates, resulting in steeper yield curves and partially reversing the flattening (and, in the case of US Treasuries, inversion) that had taken place in recent months.

Bonds were universally negative in April as interest rates climbed (yields and prices have an inverse relationship). Inflation-indexed securities experienced relatively modest declines, while corporate bonds tumbled, and emerging-market debt delivered the deepest losses.

The sustained commodities rally was mild compared to its first quarter pace with the exception of natural gas. The spot price of natural gas leapt by more than 30% in April, while oil and wheat prices also gained.

The US dollar continued to strengthen against most other currencies.

Source: Vitality and SEI, May 2022

Fund Performance Commentary. 

VitalityInvest risk-profiled solutions.

VitalityInvest Risk Optimiser (VIRO) and EnVIRO funds.

From VitalityInvest’s investment team. The VIRO and EnVIRO fund ranges adopt a similar asset allocation.

The VIRO fund range returned between -1.8% (VIRO 7) and -2.7% (VIRO 3) whilst the EnVIRO fund range returned between -1.5% (ESG Risk Optimiser 7) and -2.6% (ESG Risk Optimiser 3) in April.

The broad retreat of equity and fixed income assets across geographies dragged the performance of the funds in negative territory for the month. The funds however, have been resilient relative to global markets. Global developed equity and global investment grade bond fell by over 3% in Sterling terms. Fixed income assets suffered the most. The losses from the fixed income allocation of the funds outweighed the losses from equity. As a result the lower risk funds underperformed the higher risk funds.

Within developed equity, the higher allocation of the funds to UK equity across the fund ranges compared to global market-cap indices helped in terms of relative performance. With the exception of cash, the exposure to UK equity was the only positive contribution to performance in the VIRO and EnVIRO fund ranges. US equity markets lagged global peers significantly, followed by Japan and continental Europe. The un-hedged currency exposure to North American equity partly mitigated losses from the asset class, as the US Dollar strengthened against Sterling. Asia-Pacific and Emerging Market equities were more resilient and supported the performance of the higher risk funds (risk profiles 6 and 7).

From a fixed income perspective, Government bonds added to their year-to-date losses, with US Government bonds reporting the steepest losses in April. Credit spreads widened, and corporate bonds underperformed government bonds. Short term bonds outperformed long-dated equivalent. The allocation to short term global bonds helped reduce losses from the asset class in the lower risk profiled funds (risk profiles 3 to 5). 

Overall, we remain comfortable with the current asset allocation of the fund ranges and the positioning of the funds in this market environment. This is demonstrated by the resilience of the funds to the recent market volatility.
ESG considerations for the EnVIRO range
While the market environment remained unsupportive for ESG factors in the first quarter, April marked a slight change of direction, as sectors such as health care and consumer staples outperformed. 

Source: Vitality, May 2022

VitalityInvest risk-profiled solutions.

VitalityInvest Global Multi-Manager funds.

From SEI's investment management team.

The VitalityInvest Global Multi-Manager funds returned between -1.1% (Global Multi-Manager 3) and -2.3% (Global Multi-Manager 6) in March. 

Within global equity markets, the largest capitalisation stocks lagged the rest of the market by a significant margin, creating tailwinds for active equity management and for the Global Multi-manager funds. Investors continued to favour value and diversification as the market sold off, rotating out of mega cap growth and technology names and into stocks with more attractive valuations and a lower sensitivity to rising interest rates.

Low volatility stocks in general outperformed riskier stocks; a dynamic that was more strongly felt across the lower risk funds (Global Multi-Manager 3 and 4). Defensive sectors provided some protection over the month while volatile discretionary and technology names led the market lower. Exposure to shorter duration fixed income was also beneficial in the lower risk funds, as the rout in bond markets continued.

The difficult environment for both equities and fixed income over the month weighed on the overall returns for the higher risk funds (Global Multi-Manager 5 to 7). However the funds benefitted from active positioning. Allocations away from expensive, high growth, mega-capitalization equities was the key driver for positive relative returns while Value equity strategies, particularly in top-heavy US and Japan markets, also contributed positively. 

Within fixed income, the funds underweight to developed market duration (US, UK, Europe) has been a good driver of relative outperformance thus far in 2022, as elevated inflation and hawkish central bank rhetoric would lead to a backup in sovereign yields.

The funds’ liquid alternatives exposure had a strong month. This component holds a defensive stance at present, with very low net equity risk, inflation hedges in Treasuries, short major currencies against the US dollar, and indirectly positioned for rising commodity prices through long positions in the Australian and Canadian Dollar.

The funds’ tactical asset allocation decisions had a positive influence on results, with the largest contribution coming from option positions that benefit from a rise in long dated US interest rates. Given the strong performance of this position, much of its value has been realised and it has been closed in April. The funds maintain tactical overweights to commodities and a position designed to benefit from higher short term interest rates in the US.
Source: SEI and Vitality, May 2022

Performer Funds.

Outcome-based multi-asset funds. 

From Ninety One’s Multi-Asset and Quality teams.

The VitalityInvest Ninety One Multi-Asset Income fund returned -1.2% in April. The fund’s focus on more resilient assets meant that the fund was defensively positioned and helped avoid the sharp losses in global assets year-to-date.  

The VitalityInvest Ninety One Dynamic Multi-Asset fund returned 1.5% in March. The funds’ flexible investment philosophy means that the fund is tactically positioned towards more defensive assets to reflect a more cautious economic outlook and reduce the overall risk of the fund.

Source: Ninety One and Vitality, May 2022

Performer Funds.

Single-asset class: Global and UK Listed Equity funds.

From Ninety One’s Multi-Asset and Quality teams.

The VitalityInvest Ninety One Global Equity Growth and Income funds returned -1.2% and -0.2% respectively in April. The VitalityInvest Ninety One UK Listed Equity Growth and Income funds returned 0.5% and 0.6%.

The quality factor which underpins the equity funds’ strategy helped the relative performance of the funds in April. The fund managers do not believe the current environment has significantly changed the fundamentals of the companies in which the funds invest, which continue to remain well suited to both current conditions and for uncertain times ahead.

Source: Ninety One and Vitality, May 2022

Important information.

VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority.

Past performance should not be taken as a guide to the future performance and there is no guarantee that an investment will make profits: losses may be made.

VitalityInvest makes every effort to ensure that the information provided in this commentary is accurate and complete but no guarantee or warranty is given. This commentary is for general information purposes only and is not to be relied upon in making an investment or any other decision. Nothing in this commentary constitutes investment, legal or any other advice. This commentary is for investment professionals only and any retail customers should speak to an authorised financial adviser before making any investment decision.