During the third quarter, 10 year borrowing rates in the US moved from 3.9% to 4.6%, £1 went from being able to purchase $1.27 to buying only $1.22 and oil prices surged by nearly 30%. That is about as much of a ratcheting up in economic tightness as anyone could have expected.
But despite this, and after more than two years of rate rises leading up to it, the global economy remains standing, soaking up the punches and even throwing the occasional one of its own. During the same quarter, the UK saw it’s GDP since the start of the pandemic revised upwards significantly, US job openings posted its largest increase in two years and in China, retail sales were reported as increasing at a faster rate and ahead of expectations.
Against that backdrop, the performance of most major asset classes has been poor with the notable exceptions of the ‘Magnificent 7’ tech stocks in the US which are up roughly 50% year-to-date and more recently, oil and gas stocks which have dominated returns in the UK, up more than 10% year-to-date against a broadly flat index.
The Coleman Street Investment funds have avoided such concentrated exposure, to the detriment of short term performance and have continued to focus on great businesses, run by people that we trust and available at reasonable prices.
Our investment process continues to focus on the underlying strength of businesses in the long term rather than movements in the share price over the short term. We are particularly excited to see Dunelm grow market share in the UK homewares market whilst making long term investments in their technology platform. We are excited to see Kering add to their collection of globally famous luxury brands with the acquisitions of Valentino and Creed. And we are excited to see Close Brothers grow their loan book in a higher interest rate environment without the emergence of significant bad debts.
We continue to believe that an uncertain and volatile backdrop requires both flexibility and balance in portfolios and we see continued opportunities in such an environment.
The value of investments and the income from them can go down as Past performance is not a reliable guide to future returns. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
