Market commentary: Jan 2023

Portfolio performance 

Performance for the year to 31 January 2023 can be seen as two contrasting halves. Market valuations of shares and bonds fell dramatically in the first 6 months as central banks in most countries increased interest rates. Property and infrastructure valuations also fell because rental income as a percentage of property valuations is often compared to interest income as a percentage of bond valuations. When interest rates go up, valuations of both these investments go down. The second 6 months was a period of steadying the ship and a slight recovery of share prices. Markets are now looking for signs that inflation is under control, interest rates will fall, and commencement of the next bull market.

Cloud computing – an enduring and multi-year growth opportunity

“The cloud” refers to computers that are accessed over the internet, and the software and databases that run on those computers. Banks of cloud computers are housed in data centres all over the world. Instead of organisations having to make major investments in computers, train staff, and provide ongoing maintenance, some or all of these needs are now handled by a cloud vendor.

The benefits of cloud computing are enjoyed by millions of people every day. Netflix can stream shows from anywhere in the world because of Amazon’s AWS cloud service. The many features of Google Maps are made possible by Google Cloud.

Every day new businesses are using the cloud to quickly develop high-growth and agile businesses that disrupt established industries. For example, Uber and Airbnb have severely disrupted the established taxi and hotel industries using cloud computing.

The three companies that dominate the cloud vendor market (Amazon 32%, Microsoft 20%, and Google Cloud 9%) are in a strong position to benefit from what is regarded as an enduring and multi-year growth opportunity.

Market overreaction?

Hello Fresh is a German company that operates in 16 countries and is the global leader in providing meal kits for easy home cooking. Last year the price fell 60% even though the company was reporting substantial subscriber growth and record revenues. Fund managers believe Hello Fresh has a bright future because it’s established as the market leader in the countries it operates in, it’s a data-driven company with technology at its core, and it’s benefiting from the shift to online shopping. The meal kit market is still in its infancy but growing rapidly. Lower profit is predicted in the short term as abnormally high profits during Covid return to normal, but the long-term outlook is compelling. It looks like a case where panic sellers have overreacted while long-term investors spy a buying opportunity. 

Richard Grimes, Director and Financial Adviser