After strong gains in October and November, equity markets closed off a tough year by declining in December with the Nasdaq Composite down by 8.73%, the S&P500 posting a decline of 5.9% and the MSCI down by 4.34%.

On the economic front, the US housing market generally showed further signs of deterioration and data on durable goods orders were generally weaker than expected after backward revisions to previously released data are taken into account. Nevertheless, data on consumer confidence shows that consumers are less downbeat at present than they were a few months ago.  While many central banks around the world have tightened monetary policy aggressively to fight inflation, investors continued to balance the Central Banks’ cautious stance with the expectation that the pace of tightening would slow. However, the speed of transmission of these rises through the economy depend upon the level of indebtedness and the structural elements of the debt and mortgage rates. In the U.K., household debt-to-income at 135% is higher than in the United States and Eurozone with debt-to-income ratios at 100% and 97%, respectively. However, when compared to Canada (7.2%), Australia (6.9%), U.S. (4.6%) and the Eurozone (0.5%), household interest costs as a percent of disposable income suggest that the, U.K. at 2.5%, may be slightly less vulnerable to rising rates. Thus, even though the Halifax house price index in the UK increased 2% year-on-year in December of 2022, easing from a 4.6% gain a month earlier and the unseasonably warm weather across the UK and Europe in recent months curbed demand and eased the stress of the country’s energy systems, it could take longer for monetary policy tightening in the U.K. to have a more meaningful influence on inflation, as indicated in the wording associated with the recent increase by the BOE of its Bank Rate by 50bps to 3.50%.

In the UK, the broad market performed better than its overseas counterparts with the FTSE 250 Index declining by only 1.62%, the large cap FTSE 100 Index down by 1.60% and the AIM All-Share Index also lower, declining by 2.03%.  The Fledgling Index was up by 0.08% and the Small Cap Index performed similarly well, up by 0.22%.  By comparison, the Athelney portfolio declined by only 0.25% during the month and, after providing for expenses, the NAV was down by 0.68%.

We sold our holding in Abcam following the company’s decision to move its listing to the US and added Cerillion Plc to the portfolio.  We increased our holding in Impax Asset Management, maintaining our cash at 11.5% of the portfolio at month end.