Written by Cormac Nevin.
April proved to be another challenging month for investors as the MSCI All Country World Index retreated -3.5% in GBP terms, which admittedly was better than the -6.5% return in local currency terms thanks to the weakening in Sterling. There was a wide spread of outcomes for global investors across different markets. Much of the pain was concentrated in the tech-focused NASDAQ Index of US Equities which lost -13.3% in local currency terms over the month. The UK Equity market, measured by the FTSE All Share Index, was something of a safe haven in this environment, returning +0.3% for the month. Alongside falls in the equity markets, traditional Fixed Income markets offered little by way of protection as the Bloomberg Global Aggregate Index of investment grade bonds fell -2.8% in GBP Hedged terms, while the High Yield Corporate Index was down -3.3%.
These market ructions are likely symptomatic of the ongoing transition we have witnessed this year from the market exuberance and easy financial conditions which characterised the post-pandemic environment, to an environment with higher interest rates, higher inflation rates and more realistic equity valuations. One of the most notable developments this year has been the continued deflation of speculative equity valuations which reached levels reminiscent of the dot.com boom of the early 2000’s, while the bust has been eerily similar too. Cathie Wood’s much hyped Ark Innovation ETF is now in a -70% drawdown from its pandemic peak. Names that might be more familiar to UK investors, such as the Baillie Gifford suite of products, have experienced similar outcomes.
However, much like in the opening lines of T.S Eliot’s poem from which our title is sourced (ironically written at the twilight of the last great pandemic of 1918), April is also the month in which hope springs eternal. Value equity performance has been robust in recent months, active Fixed Income management has been hugely important and high-tech growth equities are now priced at more reasonable levels. Diligent and open-minded research will likely assist long-term investors to plant the seeds for future returns.