31st October 2023

Cappuccino Commentary

A relaxed read on the issues of the day

In general, September was a challenging month for most asset classes, some did manage to deliver positive returns, but this was a more a function of currency moves enhancing returns for sterling investors, rather than positive performance from the underlying investments.

Global equities delivered negative returns, this was primarily driven by long-term rates hitting new highs, with investors adjusting to the more hawkish message from central banks of “higher for longer”. As expected, the US Federal Reserve paused rate hikes at their September meeting, but future rate hike expectations were raised.

Across equities both Japan and the UK delivered positive returns. The Japanese market in local Yen terms delivered +0.5%, a recovery in the Yen over the month, meant the market returned +2.3% from a sterling perspective. There was no change of policy during the month, but comments from the Bank of Japan Governor Kazuo Uedo, seemed to imply a significant policy shift. He has only been in office since April this year, and over the cause of the last few months has set a dovish tone towards monetary & fiscal policy. This it appears, could be shifting more aggressively which had the impact of driving both the Yen and bond yields higher. The Japanese equity market is a region we favour – we have seen a positive pick up in economic activity and corporate activity.

While the UK equity market was positive over the month, this hides what was going on under the bonnet. The large cap part of the market (the FTSE 100) returned +2.4%, but the midcap FTSE 250 declined -1.5%, while the small cap part of the market delivered +0.5%. At the same time with a weaker sterling over the month, those internationally exposure companies outperformed domestically focused companies. The FTSE 250 over previous months, has been negatively impacted by rapidly rising interest rates and the high inflation we are experiencing, these factors again were at play for the mid-cap part of the market.

US equities were the worst performing of the equity regions declining around -5.0%, but with a strong dollar over the month were down just -1.0% from a sterling investors perspective. The “higher for long” mantra in terms of US interest rates was the main driving factor and also saw US 10 year treasury yields climb towards 5%.

With the expectation of future interest rate hikes from central banks going forward we saw both corporate bonds and government bonds deliver negative returns. Our preference for short dated investment grade bonds helped not only protect against this volatility but also delivered positive returns.

Within the Alternatives space there were mixed fortunes. Higher rate expectations continued to have a negative impact on infrastructure which declined -1.1%, while commodities were positive, mainly buoyed by the rising oil price, with Brent oil moving above $94 a barrel. Commodities posted a +2.9% return. Strength of the dollar saw the gold fall -0.8%.


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    Copia Capital Management

    Hamilton House, 1 Temple Avenue, London, EC4Y 0HA

    Understanding the risks

    This information is intended for professional financial advisers only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such. Model investment portfolios may not be suitable for everyone. The value of funds can increase and decrease, past performance and historical data cannot guarantee future success. Investors may get back less than they originally invested.

    Copia Capital Management is a trading name of Novia Financial Plc. Novia Financial Plc is a limited company registered in England & Wales. Register Number: 06467886. Registered office: Cambridge House, Henry St, Bath, Somerset BA1 1JS. Novia Financial Plc is authorised and regulated by the Financial Conduct Authority. Register Number: 481600.

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