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Felix Wintle
Fund Manager
Despite today’s hotter than expected CPI print of 9.1%, there is likely some relief on the inflation front coming. Commodity prices across the board have shown significant weakness over the last several weeks and this is welcome news for equity investors. Although the effect on prices that consumers pay will come on a lag, the price of the underlying commodities is the leading indicator, presaging lower prices ahead. For a general overview of the commodity space, we tend to look to the CRB Commodity Index and, of the 19 commodities it tracks, 18 were lower in price vs four weeks ago, and some considerably so.
The most important commodity in the CRB Index is oil, in terms of its weighting in the index and its influence on the CPI. Oil has been the last commodity to crack, but it has fallen some 21% since the recent high on 8 June, following other related commodities like Natural Gas which is down 30% since its high on 6 June. This is all good news for the peak inflation argument, which has come into focus recently, as bond yields have failed to make new highs and the market starts to focus more on recession risks than inflation. The argument that inflation has peaked is a strong one given the recent price movements; we will see over the next few months if that proves to be the case.
Despite a recent uptick in the consumer stocks, particularly the airlines last week, it’s notable that these groups have not been leadership as the oil price has fallen back. This is most likely more to do with the pressures on the consumer, where inflation is still a burden, but also where there has been a substantial negative wealth effect. The collapse of crypto and the bear market in tech stocks will have a significant impact on consumer spending in America, and this can be evidenced by the record low in consumer confidence as of the last reading in June:
The negative wealth effect and the all-time low consumer confidence reading are two reasons why we have virtually no exposure to the consumer discretionary sector and continue to believe that areas like retail are going to come under severe pressure over the next several months.
Our preference is for parts of the market that are much less affected by the macro backdrop, areas like Healthcare which is currently our largest weighting in the fund, and where we continue to find new investment opportunities.
WARNING: All information about the VT Tyndall North American Fund(‘The Fund’) is available in The Fund’s prospectus and Key Investor Information Document which are available free of charge (in English) from Valu-Trac Investment Management Limited (www.valu-trac.com). Any investment in the fund should be made on the basis of the terms governing the fund and not