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Cirilium Blend Commentary - July 2022

UK: Suitable for retail and professional clients.

Date: 23 August 2022

Market review

Image of a stylus on a screenFollowing a difficult first half to the year, global equity and bond markets rebounded strongly in July.

During the month, investor attention shifted from rising inflation and interest rates towards the potential impact this will have on economic growth. Investors started to worry that rising interest rates may trigger a downturn in economic activity. This led to speculation that the US Federal Reserve (Fed) would cut rates next year, the prospect of which was a huge boost to equity and bond markets.

In July, the Fed delivered its second consecutive 0.75% interest-rate increase, while the European Central Bank (ECB) surprised the market with a 0.5% rate rise.

In the US, equity markets shrugged off the interest-rate rise and enjoyed their best month for two years to be the top-performing regional market in July. The MSCI USA Index was up 9.1% thanks to the outperformance of technology and consumer discretionary (companies that sell goods and services that are considered non-essential by consumers) stocks, sectors which are especially well represented in US indices.

This was part of a notable change compared with the first half of the year as investors moved away from ‘value’ stocks, companies whose share price is low relative to their value, and into ‘growth’ stocks, companies that get their value from

the rate at which they are expected to grow their profits in the future. Consequently, the MSCI World Growth Index jumped more than 11.3% in July with the MSCI World Value Index gaining 4.4%.

European equities also performed well with the MSCI Europe ex UK Index returning 5.2%. While shares in energy companies declined in June as oil and gas prices fell, they resumed their upward trajectory in July. The increase in energy prices, driven by the ongoing conflict in Ukraine, has impacted Europe’s economic prospects. Indeed, the region’s reliance on Russian energy imports caused the euro to US dollar exchange rate to be one for one in July.

Elsewhere, UK equity markets were also positive in July. The FTSE All-Share Index, representing nearly all the UK stock market, returned 4.4%. Meanwhile, the FTSE 250 Index, made up of the 101st to the 350th largest companies, was up 8.3% as small and mid-cap stocks benefitted from investors moving from value to growth stocks and being willing to take more risk.

Emerging markets saw a modest decline, largely due to the debt problems of China’s property sector. In July, reports emerged that Chinese property owners were refusing to pay mortgages on unfinished homes that were already declining in value. These factors contributed to the MSCI China Index decreasing by 9.6%. This also impacted the MSCI Emerging Market Index which, despite some robust gains from other index constituents, declined 0.4%.

In fixed-income markets, riskier assets outperformed with high-yield bonds (issued by companies with lower credit ratings) outpacing investment-grade corporate bonds (issued by companies with higher credit ratings). It was also a positive month for government bonds, as hopes that the Fed might reduce interest rates in 2023 buoyed investors, despite the further interest-rate increases expected in the near term.

(All performance figures in sterling terms and rounded to one decimal point, unless otherwise stated.)

Performance review

Image of someone pointing at a graph on a screenAll the Cirilium Blend Portfolios delivered attractive positive returns in July, a month characterised by strong equity returns, in particular for US markets and for high-growth companies, both of which delivered strong returns.

Consequently, the top-performing equity holdings included the Granahan SMID Select Fund, which added 15.6% and the Sands Capital US Select Growth Fund, which gained 11.7%.

The weakest performers tended to focus on Asian and especially China, thanks to the problems in its huge property sector. As a result, the Fidelity China Consumer Fund declined 10.3% while the Fidelity Asia Pacific Opportunities Fund declined by a more modest 1.3%.

In aggregate, our alternatives holdings also delivered modest gains. The top-performing holding was the Allianz Fixed Income Macro Fund which gained 3.9% followed by the Lyxor US$ 10Y Inflation Expectations ETF, which added 2.5%, thanks to ongoing worries over persistently high inflation. Meanwhile, the Sandbar Global Equity Market Neutral Fund declined 2.1%.

In July, we adjusted our equity manager line-up to deliver a more balanced exposure to ‘growth’ and ‘value’ investment styles and to better diversify our active manager exposures. As a result, we made some small allocation changes to a number of positions while adding two new holdings to the portfolios.

The new holdings were the iShares MSCI World Health Care Sector ESG ETF and the Liontrust UK Growth Fund. In the case of the former, we funded the purchase by reducing our holdings in the AB International Health Care Fund while maintaining the same overall healthcare exposure.

The Liontrust UK Growth Fund was mostly funded by a reduction in our allocations to passive UK equities enabling us to add some ‘growth’ exposure with a tilt towards larger UK companies.

From an asset allocation perspective, our target equity allocations remained broadly unchanged throughout July, reflecting a slightly larger position compared to our long-term strategic asset allocation (SAA) model. Within equities we maintain a slightly smaller exposure to Europe and a larger exposure to the global healthcare sector.

Among our fixed-income holdings, we retain a slightly larger emerging market bonds exposure but have less exposure to high-quality bonds that are less sensitive to changes in interest rates.


Global economic activity numbers have continued to slow in recent months while consumer confidence ebbs in the face of interest-rate rises and higher energy costs that risk tipping numerous economies, especially those in Europe, into an economic downturn.

However, so long as unemployment rates stay so low, we remain optimistic that a meaningful global economic downturn is unlikely. We remain broadly positive on the medium-term outlook as both consumer and corporate balance sheets are in good shape. We continue to look for signs of fundamental weakness but economic numbers remain surprisingly resilient.

The impact of slowing economic growth and high inflation on corporate profitability will, inevitably, vary by region and industry, but company earnings are holding up well while the dispersion in companies’ fortunes should provide plenty of opportunities for active managers.

Fixed-income assets are now starting to look attractive, particularly if central bank rate rises conclude and we see cuts during 2023.

Although global growth may be slowing, with both China and Europe facing their respective challenges, the world’s largest economy, the US, remains robust. Consequently, we’re cautiously optimistic on equities. Valuations are still attractive and we continue to buy during periods of weakness, rather than selling when markets rally.

Performance summary (%)

Since launch 2021 2020
Cirilium Moderate Blend 2.0 -5.3 -2.6 11.0 12.0 8.6 5.4
IA Mixed 40-85% Shares 3.5 -7.7 -4.3 9.7 10.7 11.1 5.5
Cirilium Dynamic Blend 2.3 -6.5 -2.7 12.7 13.9 11.9 5.3
IA Flexible 3.3 -7.5 -4.4 11.8 12.9 11.4 7.0
Cirilium Adventurous Blend 2.6 -7.9 -3.7 12.1 13.5 13.3 5.1
IA Flexible 3.3 -7.5 -4.4 11.8 12.9 11.4 7.0

Source: Quilter Investors as at 29 July 2022. Total return, percentage growth, net of fees of the U1 Acc share class rounded to one decimal place. The Cirilium Blend Portfolios launched on 26 July 2019.

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Ian Jensen-Humphreys

Portfolio Manager

Sacha Chorley

Portfolio Manager


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