Last week was a negative one for markets, as the MSCI All Country World Index of global stocks returned -2.3% in GBP terms.

The stand-out macroeconomic event of the week was the release of US inflation data on Wednesday, which revealed that prices were rising faster than market participants had anticipated. The increase in consumer price inflation came to +4.2% over the 12 months to April, the highest reading since 2008.  This has been spurred on by monetary stimulus in the form of asset purchases from the Federal Reserve, the large fiscal stimulus planned by the Biden administration; as well as significant supply bottlenecks experienced by many raw material producers. This has seen the price of commodities such as lumber, copper, and corn rocket higher, albeit from quite a low base.

Increased inflation expectations, coupled with the higher interest rates which central banks may feel they now need to implement sooner, led to quite a substantial sell-off in the very frothy end of the US Tech sector (particularly the unprofitable parts, of which there are many). The NASDAQ Index of US Tech names was down -3.1% for the week, while retail favourites packed with loss-making “moonshot” stocks such as the ARK Disruptive Innovation ETF and the Baillie Gifford Global Discovery Fund lost -6.0% and -6.9% respectively.  We continue to find the prices of assets in this end of the market to be disconnected from reality and increasingly unattractive in a potential rising inflation and interest rate environment.  What was also amusing to observe, in a week where inflation exceeded expectations, was a -18.3% fall in the price of Bitcoin.  The legion of online zealots touting the cryptocurrency as an inflation hedge may need to review their investment hypothesis.

Segments of the market, which we have been more constructive on, performed relatively better over the week.  Global value stocks outperformed global growth names by +1.9%, while the value-orientated UK Equity market (which we are overweight) was the best performing global equity asset class for the week.

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