The setup for financial markets as we entered 2022 was challenging.

Inflation was rising rapidly globally, resulting from supply chain constraints, rising commodity & energy prices, and wages. The 10-year Treasury benchmark yield, reflecting this concern and anticipating the onset of rate hikes by the FED, went from 1.51% to 2.38% at the end of March. The FED raised the Fed Funds rate by 25 bps at the March FOMC meeting and signaled to the markets that more monetary tightening would be forthcoming. Besides the rate hikes, the consensus is for the FED to embark on Quantitative Tightening and begin shrinking the Fed’s balance sheet.

Investors in Chinese securities continued to face the impact of regulatory headwinds. Although the tempo of regulatory changes in the technology sector is clearly easing, the government-induced unwinding of the Chinese property bubble and the sporadic outbreaks and lockdown because of the Omicron infections, confidence remains fragile.

It was against this less than sanguine economic and market outlook that we saw Russia invading Ukraine, starting the biggest war in Europe since World War II. The impact of the war was felt immediately by the rest of the world, mediated by the sharp rise in energy and food prices. Russia is the world’s largest exporter of crude oil and Russia and Ukraine together accounted for 30% of the global wheat production. In the context where the world was already grappling with rising inflation, the spike in energy and food prices resulting from the war, gives cause for central banks across the world to turn even more hawkish in the months ahead.

The conviction of the fund is that buying quality growth companies at reasonable prices will yield investors the best returns in the long run. While the market prices currently may not reflect the true potentialities of these companies, many of the companies we invested in agrees with us and are aggressively buying back their shares.

Mar 2022