The US economy expanded by an annualised rate of 2.6% in the final quarter in 2022, slightly below the initial estimates of 2.7%, which represents an overall increase of 2.1% for year. The UK economy on the other hand only managed a slight improvement of 0.1% in the fourth quarter of 2022 which was also a stronger performance than previously anticipated and which meant that the UK had avoided a recession.  While global economic activity has been curbed to some extend by the central bank interest rate increases, the real impact has been on regional banks in the US where inappropriate balance sheet management has led to a renewed round of bank collapses. Fortunately for the financial markets, wider contagion was prevented by the swift action on the part of the Federal Reserve to ensure that the banking system remained stable and it is unlikely that there will be a repeat of the global financial crisis which followed the collapse of Lehman Brothers in 2008. 

Earlier in the month, in his first full budget speech, the UK Chancellor set out what was described as a budget for growth, aimed at achieving long-term, sustainable economic growth for the UK. Its main objectives were to remove barriers to employment, encourage business investment, and address labour shortages in some industries.  Subsequent economic data that was released, showed an unexpected increase in inflation for February, from 10.1% to 10.4% which prompted the BoE to raise its baseline interest rate for the 11th consecutive time, from 4.0% to 4.25%. Clearly the elephant in the room remains the eventual impact that the interest rate increases will have on the property market where post COVID office occupancy rates still have not picked up to any material extent, mortgage rates for homeowners that have remained elevated and global credit markets which remain tight. 

Equity markets on the other hand were volatile during the month, initially declining in response to the regional bank failures in the US and then recovering as the situation was ameliorated by the Federal Reserve. The net result was that the Nasdaq Composite was up by 6.7%, the S&P500 improved by 3.5% and the MSCI increased by 2.8%.  In the UK, the large cap segment of the market bucked the global trend with the FTSE 100 down by 3.1% over the month while the broader FTSE 250 Index declined even further, by 4.9%.  Smaller company valuations were under even more pressure with the AIM All-Share Index declining by 5.8% and the Small Cap Index down by a slightly lesser 5.3%.  By comparison, the Athelney portfolio with its focus on quality growth companies was more resilient, declining by only 2.9% during the month and, after providing for the 7.5p dividend and ongoing expenses, the NAV declined by 6.5% to end the month at 211.7p.

During the month we reduced our exposure to the Target Healthcare REIT and Liontrust Asset Management and used the cash to increase our holdings in Paypoint, NWF and LondonMetric.  Our cash holding at month end comprised 2.7% of the portfolio.