Levitas Investment Review | November 2021-January 2022

Levitas A had a positive start to the quarter ending 31 January 2022, marginally ahead of its benchmark and Levitas B gave a more pronounced outperformance of its benchmark for November 2021. Positive returns continued in December for both funds, but 2022 saw a tough start for Levitas A as it declined in January falling behind its benchmark. Levitas B was more resilient, as would be expected during periods when risk assets decline, although the fund fell in absolute terms in January and performance was slightly behind the benchmark.

Asset class performance
Growth strategies were strong in November, with areas such as technology and global smaller companies performing particularly well. US assets performed well, helped by a strong dollar versus the GB pound. Emerging markets, Asia and Europe all declined over the month amid fears about the possible impact of Omicron while sovereign and corporate debt all delivered positive returns.

In December, value and cyclical companies gave a stronger performance than previous months. Healthcare rallied but technology and growth focused assets lagged behind amid the potential of rising inflation. Emerging markets and Japan declined with US assets having a very mixed month.

January saw the shift away from growth and towards value accelerate as fears of rising and persistent global inflation grew. This had a more pronounced effect on Levitas A which has a bias towards growth but has seen the addition of value assets over the past 12 months. Levitas B was also affected but was more resilient thanks to lower exposure to equities in general and growth in particular.

Positioning and Outlook
Omicron and inflation were the two key themes affecting markets over the quarter. It began with real worry over the impact of Omicron on global economies, but a more optimistic view developed as the variant was found to result in less serious illness than its predecessor and vaccine and booster programmes continued. While a degree of uncertainty remains about the impact of Covid-19 in the future, the general view is that its impact is waning.

As fears around the Omicron variant faded, there were expectations for stronger economic growth, which quickly translated into fears of rising and persistent inflation. Oil and gas prices continued to fuel this concern and the global tension surround the Russia-Ukraine situation added to uncertainty about gas supplies to Western Europe. While inflation is likely to remain a ‘hot topic’ in 2022, our view remains that inflation is likely to diminish in the latter half of the year.

Fund activity
In November a number of changes were made to the portfolios. In Levitas A, we slightly reduced equities to increase cash, largely as a profit taking exercise.  For Levitas B, we have trimmed equities and also more aggressive non-equity positions such as convertibles. We have become aware that certain diversifying elements in the portfolio are not really providing a large degree of diversification benefits. Therefore, we have been concentrating on areas such as short duration debt which should offer protection if we see weakness in the broader bond market. There were no significant changes in December or January.