Interest rates continued to rise in the major economic blocs in July as central banks tightened monetary policy yet again. The net effect was to edge sterling higher over the period, presumably because the market expects more interest rate rises to come for this currency than others. Despite this headwind, value stocks slightly outperformed the main market in July and helped the relative performance of the fund. This was encouraging after the underperformance during the first

Deeply embedded inflation in the UK, driven by a tight labour market, prompted another rise in the UK bank rate in June. That, and expectations of further rises to come, pushed sterling up nearly 2% over the month and was the main reason for a decline in all the main UK equity indices. The end of June marks the halfway point for the year and these interest and exchange rate trends have clearly been the dominating factor over the first six months. Deeply embedded inflation in

Equity markets had a lacklustre month in May either trading slightly down or flat and the fund followed the trend. Because of its tilt towards high dividend paying shares the fund experiences the ex-dividend effect at this time of year. Most companies with December year ends declare results in February or March and then go ex-dividend in April and May. Clearly this impacts the capital value of the shares as they fall to reflect the amount paid out in dividends. The total retu

Financials stand to benefit from rising Net Interest Margins (the difference earned between lending and borrowing) as interest rates increase. However, in the short run, pressure on the US regional banking sector has had a ripple effect on the financials sector more broadly including HSBC, one of the largest holdings in the fund. A rising interest rate environment is generally positive for banks so the prospects for the sector remain encouraging, especially as the forecasted

The Fund returned +8.2% in 2022 owing to the inherent bias towards income-generative companies. These companies are also “value” style companies whose valuations are typically driven more by near-term fundamentals, than long-term concepts. Furthermore, income-focused companies also tend to be more inflation resilient. This is primarily because of the sectors they operate in. The fund’s largest holdings are in income-generative companies in the Financials, Energy, Material

UK inflation figures came out this month with a print of +9.0%yy (April), from +7.0%yy (March) and slightly below +9.1%yy consensus estimate. This is the highest level in 40 years and brings the UK’s cost-of-living crisis into sharp focus. Rising energy and food costs are the primary drivers, linked to the sanctions regime and the Russia/Ukraine war. The Bank of England has been behind the curve regarding inflation risk. A look at inflation guidance contained in recent Moneta

Goodhart’s Law states that when a measure becomes a target it ceases to be a good measure. It was conceived in the 1980s when monetary policy was used to try and control inflation but the relationship between the two quickly diverged contrary to expectations. Subsequent examples have proliferated; most recently during Covid when the imperative to save the NHS resulted in more deaths at home. Again, not what was intended. However, the most glaring example has been staring us

With the inflation rate in the US and Europe showing little sign of slowing down - not least due to the additional supply shock prompted by the Russia-Ukraine war - a recent survey conducted by Bloomberg revealed unequivocally that a majority of investors view allocating to Value as the optimal inflation hedge, with gold and inflation-linked bonds coming in as distant runners up. The “great rotation” to Value began towards the end of 2020 as inflation fears came into focus

Value-biased equities have been out of fashion since the financial crisis with performance lagging Growth or Momentum factor equities. But they are making a comeback because of their cash generative ability and shorter “equity duration” characteristics which mean they have greater potential to outperform during an inflationary regime. Value has outperformed growth since vaccine day (9th November 2020) in a so-called "great rotation". However, it still has potential to conti

Within UK equity market segments, UK Equity Income outperformed all other segments in 2021 as inflation fears made income-generative, value-oriented shares relatively more attractive, according to research by Elston Consulting¹. UK Equity Income, represented by the Freedom Smart Beta UK Dividend Index (ticker ELSUKI Index), returned +20.77%, whilst UK Large Cap returned +19.38% and UK Core returned +18.44%. UK Small Cap was the weakest UK segment, returning +14.54% for the