March was a month of relatively strong performance compared with the start of the year for most of the world’s largest companies, as investors overlooked the tough macroenvironment.
Despite the continued war in Ukraine, rampant inflation and interest rate hikes from both the Bank of England and the US Federal Reserve, the MSCI World index rose 4.7% last month, shaking off a disappointing start to 2022.
In the Investment Association universe, the IA Latin America and IA Commodity/Natural Resources sectors led the way again, having topped the list in February.
Oil was the main driver of returns for these sectors, as the price of the commodity ended the month at $107 (£81.49) per barrel but hit an intra-month high of $139. Gold also rose, up $42 on the month to $1,942.
Brazil did particularly well in March, boosted by a strong real, which was a boon to those funds and trusts that invest in local currency. As such, these funds dominated the list of top performers for the month, as the below table shows.
Source: FE Analytics
Ben Yearsley, director at Fairview Investing, said: “Clearly the war in Ukraine is still one of the dominant events shaping markets, with the other being the surge in inflation and the response from central banks.
“The two are clearly linked as energy is such a vital cog in the inflation outlook, especially in Europe. With inflation nearing 10% in some countries, will 0.25% rate hikes make any difference?”
It is perhaps for this reason that the market grew fonder of previously shunned tech and growth stocks, with the IA North America, IA Global and IA Technology and Technology Innovations sectors up for the month.
Source: FE Analytics
Closer to home, the IA UK All Companies, Equity Income and Smaller Companies sectors all ended the month in positive territory.
This month chancellor Rishi Sunak revealed his Spring Statement, in which the Office for Budget Responsibility forecast inflation of 7.4% and economic growth of 3.8%.
At the opposite end of the spectrum, China funds lost an average of 6.4% as president Xi Jinping set China’s growth target for 2022 at 5.5%. This is the lowest in three decades and reflects the country’s battle with the pandemic, where its ‘zero Covid’ approach has hit the economy.
“Markets are being spooked, with Shanghai the latest to endure city-wide lockdowns,” Yearsley said.
Bonds also had a torrid time, as the interest rate hiking cycle continued to bite. The UK 10-year gilt yield rose further last month, closing at 1.61% after starting at 1.41%.
The equivalent US 10-year Treasury yield rose from 1.83% to 2.34%. Yearsley said that many market commentators had “predicted a meltdown for stocks at anything approaching 2%”, although this has yet to happen.
“Focusing on the negative this month and bonds look bleak. The Fed has hinted at rate rises every meeting from now on and even the [European central Bank] ECB has talked up rate hikes,” he said.
“Bonds propping up the tables will be a common occurrence for the foreseeable future. It makes having a balanced and diversified portfolio challenging. Alternative sectors, such as infrastructure, may well play their part as both a diversification tool and a hedge against inflation.”
Turning to investment trusts and a similar pattern emerges, with the IT Latin America sector topping the charts with a gain of 12.4%.
Source: FE Analytics
However, beleaguered North American trusts performed better than their open-ended peers as investors took advantage of steep discounts to pick up bargains.
Similarly, the IT UK All Companies sector performed worse than its fund rival as the brakes were put on the domestic market recovery.