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Investors endured another difficult month in April as both equity and bond markets continued to slide. From the perspective of sterling investors, losses were somewhat contained with global equity markets falling around 4%, although US equities were down nearly 9% in April alone (in US dollars). Coming on the back of negative returns in the first three months of the year, US equities have lost 13% in 2022.

The war between Russia and Ukraine, inflation, rising interest rates and a resurgence of Covid-19 in China have made the start of the year a testing period, with relatively few safe havens for investors. One bright spot, however, has been commodities. With the Russia / Ukraine conflict adding to the pressure Covid-19 has wrought on supply chains, demand has outstripped supply and pushed up prices. The UK equity market, which includes some significant oil & gas and mining businesses in its top ten, has benefited from this. UK equities have delivered a small positive return this year, which has helped to offset some of the losses investors have experienced elsewhere: global equities and UK government bonds have declined 6% and 9% respectively, over the same period.

Bonds, which are typically held in greater proportions by lower risk investors have proved to be anything but low risk. Bond investors receive a fixed income stream over the life of the bond, but with inflation running well above the levels targeted by central banks and rising interest rates, the value of those bonds is reduced. Certain companies within the equity market have also suffered in a similar way: businesses that are driven by earnings that they expect to receive in the future (as opposed to those businesses with lots of assets or stronger near-term earnings) are experiencing share price falls as investors adjust the value of those earnings to take account of interest rates and inflation.

In the near term, we expect to see continued headwinds for bonds as prices continue to adjust for central bank policy but pockets of value have begun to open up, and, after the worst performance in decades, this should provide a foundation for positive returns going forward. In equities, we have seen falls in markets at the overall level, but there have been even stronger currents under the surface with a move away from the strongly growing businesses investors had preferred towards those benefiting from higher commodity prices. Equity markets are vulnerable to the greater uncertainty caused by the Russia / Ukraine war and by central banks attempting to balance the need to tackle inflation without wiping out economic growth. Therefore in equities, it makes sense to maintain a broad spread of investments, diversified by geography and industry, as we navigate this period.