Market commentary: Nov 2022

Portfolio performance

While inflation remains the markets primary concern, and rightly so, there are also other meaningful issues to digest, such as the climate-related costs highlighted at the recent COP-27 conference, and the impacts of de-globalisation. Despite this the market has rallied over the last 2 months as investor optimism regarding moderating inflation and interest rates improves. But equity markets are likely to remain volatile. Our client portfolio returns are improving but are negative for the year due to unrealised losses as both share and bond prices have fallen since this time last year. While this is hard to digest, it does present opportunity for fund managers to buy good companies at lower prices albeit with a cautionary eye. A high level of uncertainty prevails and our recommended strategy for adding money to investments is to stage in monthly or bimonthly instalments over 6 months to a year.

Investing put simply

In 2008, John Bogle, founder of The Vanguard Group, summed it up nicely in a speech to a conference of Financial Planners:

“Investing to me, is all about the long-term ownership of businesses, focussed on the gradual accretion in intrinsic value that is derived from the ability of our corporations to produce the goods and services that our consumers and savers demand, to compete effectively, to thrive on the entrepreneurship, and to capitalise on change, adding value to our society.”

“Speculation is just the opposite. It represents the short term, not long term, holding of financial instruments, not businesses, focussed (usually) on the belief that their prices, as distinct from their intrinsic values, will rise.”

ESG at McDonald’s

McDonald’s is one of the most recognisable brands in the world with 36,000 restaurants in more than 100 countries that serve 63 million customers every day. As the world’s largest restaurant chain, McDonald’s attracts attention from the media and investors who increasingly demand improvement of how the company mitigates its environmental, social, and governance (ESG) risks. At this year’s annual meeting animal rights activists called for McDonald’s to focus more on sustainability and submitted a proposal on sow gestation stalls. As a result, McDonald’s management responded by improving disclosure, and outlining its collaboration with industry on such matters. A good outcome that highlights the growing importance of ESG risk management to investors and that they are exercising voting rights at annual meetings to pressure companies to improve.

Richard Grimes, Director and Financial Adviser