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The Multi-Asset Process

February 2022 Market Review

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.
  • Russia/Ukraine situation dominates sentiment and exacerbates volatility across markets
  • Nasdaq falls into bear market territory, down over 20% from recent highs
  • Could fresh uncertainty persuade central banks to hold off or temper expected March rate rises?

After close to two years of the world living under the shadow of a pandemic, the last thing anyone needed was arguably the worst global security threat since the Cuban missile crisis of 1962.

Just as Covid created swathes of amateur epidemiologists in the investment community, events in Ukraine have seen commentators dusting off their copies of Sun Tzu and becoming foreign policy experts, trying to get into the heads of the world’s powerbrokers. As ever, we see little value in focusing on short-term news too much, with the situation shifting by the hour; hard as it may be, we try to keep our focus, and that of our investors, on long-term goals.

Some of the early commentary on these events has talked about a black swan event for markets that ultimately changes the post-Perestroika landscape in Europe. This may well prove to be the case geopolitically but looking at similar situations in the past from an investment perspective, while causing short-term volatility, they have tended not to have too much impact on longer-term performance. With the Second Gulf War, for example, the S&P 500 started to sell-off on 21 March 2003 but this only lasted seven trading days (amounting to a 5.3% fall) and was back to the previous level within 16 days.

More topically, the Soviet invasion of Afghanistan saw the Index start to sell-off on 17 December 1979 but, again, it only fell for 12 days (down 3.8%) and was back to its previous level within six days. The 2014 events in Syria involved a longer sell-off (21 trading days from 18 September) but the 7.4% decline was wiped out in 12 days.

Beyond the threat level (particularly Putin’s ‘greatest consequences in history’ address), the major caveat today is the possible impact on oil prices; they have already climbed above $100 per barrel, the highest since August 2014, and a prolonged spell of energy inflation could mean overall higher inflation takes longer to dissipate. Prices of natural gas and metals, including gold, aluminium and copper, have also spiked; Russia is a key seller of commodities to global customers, with Europe relying on the nation for around a quarter of its oil and a third of its gas.

At headline level, it seems safe to assume the Russia/Ukraine situation will spark a setback to global corporate and consumer confidence. What it also brings is a strong dose of markets’ least favourite tonic in the shape of uncertainty and, already weighed down by impending rate rises, we have seen indices such as the Nasdaq dip into bear territory, down more than 20% from recent peaks, before rebounding slightly at the month end.

We may now see central banks tread more carefully at their March meetings, with a first rate hike currently expected from the Federal Reserve plus a possible third rise in three months from the Bank of England. While the general direction of rates will ultimately be upwards whatever happens in Europe, our view is that the pace of hiking will be slower than consensus has priced in. In the US, for example, we highlight the 10-year/two-year Treasury spread heading swiftly downwards in recent months, with a move into negative territory (so-called inversion) a reliable indicator of imminent recession or at least slowing growth in recent decades. JP Morgan is still pricing in seven 25 basis point rate hikes from the Fed this year, for a total of 175bps of tightening, but there may be some nervous eyes on that indicator in the coming weeks, particularly if markets are also digesting an oil price shock. Will policymakers be willing to act so aggressively if conditions force them to start cutting again in short order?

Earlier in the month, bonds were hit hard by another ‘surprise’ jump in US inflation that stirred hawkish comments from St. Louis Fed Chair James Bullard, who laid out the case for raising rates by a full percentage point by the start of July, including the first half-point hike since 2000. He also raised the possibility of considering a rise between scheduled policy reviews but other Fed officials appeared in no rush to move before their March meeting and a widely expected 50 basis point rise is less certain given how the global axis looks to be shifting.

In the UK, meanwhile, markets have priced in rates rising to 2% by the end of the year but deputy governor Dave Ramsden said tightening will be modest and does not envisage them going to anything like the pre-2007 level of 5% or above.

While current newsflow is broadly negative, equity markets remain attractively valued (apart from the US) and consumer spending continues to pick up as economies open – however people might view the politics behind it, the UK is moving towards a living with Covid strategy, for example. This year may prove to be a test of nerve, however, and we encourage against attempting to move in and out of markets if things do get choppy; ultimately, the best antidote to short-term volatility is diversified portfolios and a resolute focus on long-term outcomes.

Over the month, we completed our quarterly tactical asset allocation (TAA) review and remain positive overall, albeit acknowledging there will be more volatility and uncertainty, and returns are likely to be lower than enjoyed in a stellar 2021 for equity markets.

You can find full details of the latest TAA here, but to summarise, our cash ranking rose from one to two (with one the most bearish and five the most bullish) and investment grade corporate bonds fell from three to two, both moving as a result of rising UK government bond yields in the face of higher interest rates. US small caps also moved down from four to three, as we feel valuations at that end of the market are now closer to highs than in some of the large caps hit by recent sell-offs.

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Key Risks 
Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.
Some of the Funds and Model Portfolios managed by the Multi-Asset Team have exposure to foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The majority of the Funds and Model Portfolios invest in Fixed Income securities indirectly through collective investment schemes. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. Bond markets may be subject to reduced liquidity. Some Funds may have exposure to property via collective investment schemes. Property funds may be more difficult to value objectively so may be incorrectly priced, and may at times be harder to sell. This could lead to reduced liquidity in the Fund. Some Funds and Model Portfolios also invest in non-mainstream (alternative) assets indirectly through collective investment schemes. During periods of stressed market conditions non-mainstream (alternative) assets may be difficult to sell at a fair price, which may cause prices to fluctuate more sharply.


This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 
This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances. 
John Husselbee
John Husselbee
John Husselbee has 38 years’ experience managing multi-asset, multi-manager funds and portfolios. Before joining Liontrust in 2013, John was co-founder and CIO of North Investment Partners and Director of Multi-Manager Investments at Henderson Global Investors.

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