High Quality Investments in Volatile Times
Elevated inflation, driven by the unprecedented monetary and fiscal stimulus in the wake of the pandemic, and exacerbated by Russian’s invasion of the Ukraine, has remained a challenge for central banks and the wider global economy during 2022.
Although inflation has finally begun to ease in many economies, it still remains significantly above their longer term targets. Central banks have made it clear that they will maintain their rate hiking cycle, and higher interest rates in general, until inflation is well under control. Jerome Powell, Chair of the Federal Open Market Committee (FOMC), has vowed to raise rates to fight inflation ‘until the job is done’, setting the path for continued interest rate increases and a consumer coming under increasing pressure as we move towards the end of the year.
As a result of on-going uncertainty around the inflation outlook, and the resulting path of interest rates, we have seen increased volatility in the financial markets in the first 9 months of 2022. This is well evidenced in the USA by the CBOE Volatility Index (VIX), which measures the expected volatility of the S&P500 over the next 30 days, being elevated through much of 2022. In the UK, the previous Chancellor of the Exchequer, Kwasi Kwarteng, ignited further volatility in markets by announcing a slew of unfunded tax cuts. On the back of his actions, spurred on by a lack of communication with the market, the sterling fell to its weakest ever against the dollar - dropping to 1.03, a 24% decline from its 1.35 level at the beginning of 2022.
Periods of market volatility are, understandably, unsettling for many investors. However, at Marriott, we continue to believe that investors will be well served by buying high quality, international companies and to hold them for the long-term. Proctor & Gamble is a great example of such a company.
As you can see from the graph, Proctor & Gamble has been able to continue to grow their dividend payments to investors throughout a range of global macroeconomic challenges. Their market leadership, balance sheet strength and ability to maintain profit margins have been integral to their success and positions them well for the challenges ahead. These characteristics are a key component of all the companies within Marriott’s international portfolios, and they are likely to be particularly important as interest rate increases continue to squeeze the consumer as we move towards 2023. While it is clear that the global economy is facing a number of challenges, we remain optimistic that our income focused investing style, with its focus on quality, resilience and dividends, will continue to produce good outcomes for investors in the months and years ahead.
These portfolios can be accessed via:
- Marriott’s offshore share portfolio (International Investment Portfolio)
- Marriott’s international unit trusts
(Using your annual individual offshore allowance of R11 million)
- Marriott’s local feeder funds which invest directly into our international unit trust funds
(Rand-denominated)
The author of this article is Scott Cooper, he is an investment professional at Marriott
