This website is intended for professional investors

This website provides information on services offered by Martello Asset Management Limited and is not an offer or solicitation to purchase products or services, which may not be available in all jurisdictions. It is directed at professional investors and financial intermediaries who are authorised to access our services from the countries where they operate. Any person accessing this website is required to inform themselves of any relevant restrictions that may apply to them and observe them.

Before proceeding, please read our Terms and Conditions, which are available here, as they provide additional information and set out the conditions of using this website.

This website is not aimed at persons who are residents of any country, including the USA and South Africa, where the distribution of information on investment services to them is any way prohibited or where it would be unlawful for Martello to do so. 

This message will only be displayed once.

The website uses cookies to enhance website functionality, improve user experience, and analyse website traffic. You can change your cookie settings at any time by clicking on the “Cookie Settings” button.

By proceeding, you are confirming that you have read and understood our Terms and Conditions.

Looking Towards 2023..

This article is for informational purposes only – please read our Terms and Conditions.

During December, financial asset markets gave back some of the returns generated earlier in the quarter, following a peak for pessimism and risk aversion that we saw at the end of September.

Our portfolio strategies captured a significant amount of the recovery in equity and bond prices during this period, to reduce the drawdown for the year as a whole and set things up for a quicker return to previous peak valuations.

An example of this is the return generated during this period by the Martello Global Equity Fund, which at +15.64% was almost 6% points ahead of the global equity index for the final quarter. Links to the performance data for our Direct Strategies and the December factsheet for the Martello Global Equity fund can be found here and here.

2022 was dominated by high and rising inflation, weakening global growth and a rapid withdrawal of monetary accommodation, the latter having been supplied in excess to help economies cope with the pandemic. 2023 should be about a gradual recovery in economic activity (led by China and the euro area), a cooler economic climate in the US as the lagged effects of monetary tightening take hold, decelerating inflation and an opportunity at some point for central banks to start easing, once they see aggregate demand slowing. However, significant differences exist between regional economies, and their sensitivities to monetary policy, so a return to 2% inflation is not likely, and the world is likely to have to adapt to higher levels of rates than the previous decade:

The backdrop for equities in 2023 is expected to be somewhat better than in 2022, given the combination of a modest improvement in global economic growth, moderating inflation, and at least a temporary pause in Fed rate hikes. However, it will still be a challenging year ahead. Importantly, a resilient global economy, elevated U.S. earnings and valuations, and an expected further depreciation of the U.S. dollar point toward a major change in relative equity market performance continuing next year. There has already been a marked shift in relative strength over the past two months, with global ex-U.S. equities significantly outperforming the U.S., a trend that should persist in 2023 and which we have been positioning for in our model portfolios, increasing exposure to UK and European companies.

In terms of equity sector positioning, the overall earnings cycle is decelerating, but there are some notable divergences across sectors, reflecting the excesses and uncertainties created by the events and policies of the past couple of years. Energy and materials were strong contributors to our returns in 2022, and our outlook for both remains positive, supported by China’s economic reopening, a weaker US dollar and a continued shift, for the time being at least, from over-owned and expensive mega tech companies to more traditional and cheaper stocks in sectors such as financials, industrials and commodity sectors.

Commodity prices (in aggregate) are now oversold at a point when the Chinese economy is reopening (although the timing of recovery here will be impacted by the unleashing of COVID on a population with little natural immunity), which should allow prices to firm somewhat in 2023, and in the medium term, capex plans in the energy sector remain insufficient to produce enough oil to meet normalized demand. Russia’s decision to divert supply to Asia, coupled with a slower pace of demand recovery in China, could however keep the price of oil in a lower range during the first part of the year, and we used the recovery in Q4 to bank further profits in this area.

Within fixed income markets, ten year government bond yields have already fallen 100 basis points from their recent highs, but should continue to consolidate during 2023. In the US, this should also lead to a gradual further weakening of the dollar, as the yield advantage to the G10 narrows, and capital flows become less US-centric. A stronger euro should be the flip side of a weaker dollar. The peak in Treasury yields has improved the risk/reward trade off for other areas of the corporate bond market, with spreads and breakeven yields currently at levels not seen since the GFC, thus implying attractive total returns on a twelve-month view.

Another feature of our portfolios in 2022 was a higher level of activity than normal. We maintain, given the current phases of the economic and investment cycles, that a more tactical approach to investing will be necessary throughout 2023, to both capture opportunities and avoid the worst of the volatility that any new recessionary news might bring.

Please contact either Gary Hill or myself Lerato Lebitsa if you would like further information on our portfolio strategies or the Martello Global Equity fund.