It has been a volatile quarter in financial markets. Risk aversion was already elevated in January and February before the invasion of Ukraine by Russian forces. War in Europe is not a prospect many of us had considered possible in current times, but here we are, and the human tragedy is deeply saddening. Our underweight position to equities has served us well as volatility has risen, however bond markets have been harder to navigate with yields rising dramatically.
In the current negative real yield environment, where cash rates do not compensate for the loss of purchasing power through inflation, an allocation to non-financial ‘real’ assets will be an important source of both inflation-beating returns and diversification in the quarters and years to come. We have tactically added exposure to both energy and industrial commodities to portfolios, complementing our existing capabilities in Real Estate and Gold.