Cornelian Risk Managed Funds - Monthly update

In summary

Financial markets were volatile in July as the US/Iran ceasefire broke down, energy prices and bond yields gapped higher and investor confidence in the durability of the AI capex boom began to fracture. Global equities reported modest losses overall, albeit with significant intra-month volatility and regional and sector dispersion. Fixed income markets were also generally weaker as renewed inflation fears pushed up interest rate expectations and yield curves, hurting bond prices.

There were no notable portfolio changes during the month.

International Equities

Global equities lost some ground over the month, with Asia (Schroder Asian Total Return -5.4%), Emerging Markets (Vanguard Emerging Markets Stock Index Fund -4.3%) and global technology (L&G Global Technology Index Trust -6.1%) particularly weak as crowded positioning in the ‘AI trade’ unwound somewhat. Diversification was generally helpful with the majority of active managers outperforming their respective markets (Waverton European Capital Growth +3.0%, Pictet Japanese Equity Opportunities +1.5%, BNY Mellon US Equity Income +0.3% JP Morgan Emerging Markets Income -2.3%).

UK Equities

UK equities performed strongly in July, with double-digit gains recorded by a broad range of portfolio holdings including Hilton Food Group (+16.3%), Trainline (+16.3%), Shell (+15.4%), Prudential (+11.3%), RELX (+10.2%) and HSBC (+10.2%). MITIE Group (+40.6%), the UK market leader in security and facilities management services, soared after announcing a recommended cash take-over by an international competitor. The main detractors were CRH (-12.4%), AstraZeneca(-10.4%) and National Grid (-4.7%). Record share buybacks and elevated inbound M&A continue to validate our constructive view on the UK stock market.

Fixed Interest

The Funds’ fixed income allocation was relatively stable and outperformed broad fixed income benchmarks as short dated credit (iShares £ Ultrashort Bond ETF +0.4%, Royal London Short Term Fixed Income Enhanced -0.1%, L&G Short Dated Sterling Corporate Bond Index Fund -0.3%, TwentyFour Absolute Return Credit Fund -0.4%) and inflation linked government bonds (iShares % TIPS 0-5 GBP Hedged ETF +0.2%) offset weakness from more interest-rate sensitive market duration credit (PIMCO Global Investment Grade Credit -1.5%, Vanguard UK Investment Grade Bond Index Fund -1.0%). Specialist infrastructure debt investment trust Sequoia Economic Infrastructure Income was the standout performer, rising 7% as the share price discount to net asset value continued to narrow.

Alternative Assets

Alternative assets provided valuable diversification to portfolios as gains from listed real estate and infrastructure more than offset modest losses from the absolute return allocation. The strongest performers were real estate investment trusts Tritax Big Box (+5.4%), Target Healthcare (+4.4%) and LondonMetric Property (+4.2%), and listed infrastructure companies HICL Infrastructure (+3.0%) and International Public Partnerships (+1.6%).