I believe the results have been encouraging and we were pleased to deliver capital preservation during turbulent markets and a period of transition. The relative outperformance across all our absolute return models is in the context of negative returns from many traditional 60/40 managers.

It’s a step in the right direction, but more work remains. In our flagship Inflation Plus (Balanced portfolio), we delivered strong relative outperformance of 7.2% in 2022 vs. the MSCI World Index, which declined 18%. It was gratifying to deliver this alpha for clients, but we are not complacent.

Looking back at markets

2022 was dramatic—global equities fell 18% and global bonds were down 17%, their worst decline in the past 100 years. Last year the world was awash in liquidity and in the throes of an epic “Everything Bubble” across asset classes. Fast forward just twelve months and we now find ourselves striving to understand the implications of high inflation, an ongoing war in Ukraine, an energy crisis in Europe, a probable recession in 2023, and a cold war with China.

And, critically, the most dominant factor in markets—massive and unprecedented monetary stimulus—has reversed. The cost of money is soaring, and many prevailing trends of the past decade have broken. Real rates have spiked over 200 bps and equity risk premiums are up sharply. With this sea change, we sit at an awkward juncture with many uncertainties; the bubble has burst but has not fully deflated.

As I’ve experienced several times over my career, change and uncertainty bring opportunity. Today’s uncertain environment is one that suits UniQ portfolios and our approach well. Indeed, despite many challenges across markets and the geopolitical landscape, I expect that the ability to generate real positive returns with a disciplined approach concentrated on fundamental analysis will be richly rewarded.

I believe there have been few better times for active, high-conviction, alpha-generating managers, combined with liquid alternatives. As was the case in the late 1990s, it was a challenging time to be a value-oriented investor as the bubble inflated—but also an incredibly rewarding period in its aftermath as valuations normalised. If you continue to navigate markets being selective whilst being diversified with alternatives then we believe 2023 will be another positive year.

We are seeing similar dynamics at play today. It seems price matters once again and the fundamental laws of financial gravity re-assert. Although this market cycle is beyond our control, we are keen to execute our thoughts and focus on three key investment themes.

Key takeaways

· Inflation and pressure from interest rate hikes are likely to ease in 2023, but recession risks are growing. Our base case is for a mild recession in the U.S., but a worse environment in Europe. Manager selection is key. We remain focused on systematic Macro, long/short and will look to add value managers in second half of the year.

· We believe investors should focus on non-cyclical asset classes and investments that are less correlated with economic growth. Being liquid is still key but there are opportunities in Infrastructure and Defence themes.

· Additionally, we suggest modestly extending duration risk and carefully assessing the balance between public and private markets given the sharp public markets selloff. Given the rise in rates we feel there are opportunities investing slightly longer maturity in both corporate and high yield bonds. Buying quality is key to avoid spreads if there are further liquidity issues in the broad market.

Looking forward—what to expect

Our obsession is what matters most to you—earning your trust and confidence and delivering consistent performance over time. Today’s opportunity set is uniquely well-suited to our fundamental, risk-adjusted approach. As one of managers put it recently, “the past 10 years were great for markets but tough for stockpickers; the next 10 may be tough for markets but great for stockpickers”. I share this view—and we’re doing all we can to ensure we execute on it.

On the investment side, It’s also worth taking a moment to underscore what’s NOT GOING TO CHANGE. As before, the core of what we do remains unchanged. That is our values; putting clients first; alignment; a results-oriented, long-term approach; independent and contrarian thinking; and the discipline of our fundamentals-driven investment process that should equate to consistent performance.

Conclusion

I am excited to build on the momentum we have generated this year.

Thank you for entrusting us to manage your assets. With your support, we face the future with confidence.

(The author of this article is Marcus Queree, Partner & Director of FundStream. Any information herein is only expressions and opinions. This document does not constitute an offer, an invitation to offer, or a recommendation to enter into any transaction, nor does it constitute investment advice. The information contained herein is confidential and reproduction of any part of this material is prohibited. If you are in any doubt as to the suitability of an investment you should always consult your financial adviser. FundStream does not receive any form of compensation for circulation of such material.)