New Capital Global Balanced Fund

31 March 2024

Marketing Communication | Quarterly Commentary

Executive Summary

Key events in market

March was a solid month for most major asset classes. Continued momentum in equity markets and solid bond market returns helped push multi-asset portfolios upwards. A combination of robust growth data, relatively benign central bank action and no significant inflationary surprises started to move the outcome narrative slightly towards a no-landing, rather than a soft economic landing.

Key performance & positioning updates

The New Capital Global Balanced Fund rose 1.85% in March underperforming the blended benchmark by 34bps. Asset allocation was marginally positive to performance because of our overweight equity position. Security selection led to the return gap due to the US equity portfolio being underweight in Magnificent Seven names. The diversification away from investment-grade bonds held back performance in fixed-income.

Market Update

The rally of global equity markets continued in March. The MSCI World index posted a monthly gain of 3%, bringing performance in the first quarter of 2024 to 8.5%. Interestingly, the month saw a rotation in market leadership from large technological companies to financials and small caps. In fixed income, government bond yields were little changed and corporate bond spreads tightened further. Despite the US dollar rising moderately against the major currencies, this was no obstacle to a new record high for the price of gold. The last few weeks were dominated by central bank activity. The Bank of Japan eventually terminated its negative interest rate and yield curve control policies and the Swiss National Bank unexpectedly cut interest rates. In contrast, the Federal Reserve, the European Central Bank and the Bank of England, among the major developed countries’ central banks, postponed the easing of monetary policy but signalled that interest rate cuts are likely in the not-too-distant future. Accordingly, markets reacted positively focusing on the fact that financial conditions should become more accommodative rather than worrying about the uncertainty around the timing of such easing and the extent of future rate cuts. The outlook for US monetary policy has become less clear. Markets anticipate three rate cuts in 2024, but Chairman Powell kept all options open noting resilient economic growth and sticky inflation. The possibility that the Federal Reserve will cut rates later and by less than previously expected versus its peers, cannot be ruled out. An improved growth outlook should eventually provide support to risky assets but carries the risk of increased short-term volatility as markets adjust to a less accommodative monetary policy. Hence, also in view of the recent strong rally, only a moderate overweight in equities seems advisable along with a slight underweight exposure to fixed income assets. Keeping some cash available will allow to take advantage of any temporary correction. As interest rates stay high, financials should perform better than most other sectors.

Fund Performance & Positioning

The New Capital Global Balanced Fund rose 1.85% in March underperforming the blended benchmark by 34bps. The Fund is ahead of peer groups, such as the ARC Sterling Balanced PCI grouping, which is estimated to have returned 2.94% for the year. We cut equity weights at the end of the month, believing it was prudent to take profits considering the speed and magnitude of the rally in stocks since the end of October 2023. However, we maintained an overall overweight position in equities in our asset allocation, and it was from this source that we attained positive attribution. In a repeat of the previous month, stock selection proved to be a marginal detractor to returns against the benchmark. This factor was attributed to US equity selection and the strong performance of Nvidia. Although the company has tremendous long-term potential from AI (artificial intelligence), we have yet to feel comfortable with the valuation, but we continue to have the stock under review. Over the month, value factors outperformed growth factors. This interesting development may indicate the start of the market leadership change. Oil stocks, materials sectors, and financials performed better during the month. It also meant that some quality, more defensive businesses that had lagged the market previously, performed relatively better in the month. A mixture of sectors performed well, including healthcare stocks like Lonza and Astra Zeneca, performing alongside energy companies like TotalEnergies and Shell. Gold and commodity markets improved in the month, and Freeport-McMoRan, the copper miner, rose strongly alongside the Gold ETF, both purchased in recent months. The bounce in cyclical industries reflects the reduction in recession risk rather than a decisive turning point in the economic cycle. The UK's FTSE 100 index, which is heavy in traditional Oil, Material and Financial sectors, performed strongly in the last couple of weeks. Although we cut exposure to positions in both Tesla and Adobe, returns were negative in the month after both companies disappointed investors’ expectations about future volumes and margins. The Fund's fixed-income performance saw gains after a better month, with yields falling in sovereign and credit markets. Investment grade returns were most robust, up 1.5% versus the sub-index, which rose 1.23%. Spreads tightened against gilts, which grew just under 1%. Even though Emerging Markets and high-yield markets have been relatively strong over the quarter, momentum dipped relatively in March. Earlier in the year, we shortened the overall duration of our bond allocation towards a benchmark level and improved the credit quality by taking from high yield and reallocating to investment grade. As the market continues to ratchet down expectations for the speed and number of interest rate cuts likely through the coming months, we remain underweight and relatively defensive in structure. Our alternative investment allocation added positively to the portfolio over the month. Within the sub-asset class, we hold a small number of relative value, market-neutral, and trend-following hedge funds, an allocation to physical gold, and insurance-linked securities. Gold was up 7.48% over the quarter, driven by higher-than-expected inflation and further geopolitical tensions. Hedge funds were marginally positive in performance alongside the insurance-linked securities catastrophe bond fund.

Source: Bloomberg data as at 31 March 2024. Data accumulated from 29 February 2024 to 31 March 2024. Attribution figures are gross of fees and shown for illustrative purposes only. Deduction of fees will reduce returns. Past performance is not a guide to the future.

	New Capital Global Balanced Fund	Benchmark*	Difference
1 Month	-1.4%	-1.43%	+0.03%
3 Month	+2.64%	+3.15%	-0.51%
6 Month	+9.85%	+10.11%	-0.26%
YTD	+2.43%	+3.55%	-1.12%
1Yr	+8.53%	+11.87%	-3.34%
3Yr Annualized	+0.03%	+4.08%	-4.05%
5Yr Annualized	+4.24%	+6%	-1.76%
Since inception annualized	+5.81%	+7.27%	-1.46%
Since inception 21.12.2018	+35.31%	+45.62%	-10.31%

Past performance is not necessarily a guide to the future. The value of your investments and the income from them may fall as well as rise as a result of market as well as currency fluctuations and you may not get back the full amount invested. Fund performance is net of fees and representative of the GBP I Acc Share Class and shows a maximum of five previous calendar years and current year to date (computed on a NAV to NAV basis). Where share class inception begins prior to the five previous years the chart has been rebased to 100. Where the Fund has fewer than five full years of performance, returns are shown from the inception date. *Benchmark: 50% MAWD Index (MSCI ACWI Net GBP Index), 40% UR0V Index (ICE BofAML 1-5 Year Sterling Corporate Index), 5% L1BP Index (ICE BofA SONIA 1-Month Constant Maturity Index), 5% HFRXGLG Index (Hedge Fund Research HFRX Global Hedge Fund GBP Index). The Composite Benchmark is designed to compare the performance of the fund with a representative fixed basket of assets. Source: EFG Asset Management, Bloomberg. As at 30 Apr 2024.

Outlook

Economic surprise indices have risen for both G10 and BRIC economies in recent months, highlighting that data has been better than expected and remains generally robust. Our economic growth modelling indicates higher activity, indicating that the probability of a global economic recession has fallen and that the landing is likely to be soft, or we may have no landing at all. This economic outcome means that interest rates remain relatively high as central banks will not be inclined to ease conditions if economic fundamentals remain relatively sound. We will need to consider all valuations in this situation, as the prospects of lower rates and cheaper money have driven the rally in risk assets since October. Momentum in equity markets remains strong, and earnings trends will need to reflect underlying improvements in the economic outlook before it would be viable to become more positive on equities. For now, the trends look favourable, but we are mindful that the prospect of higher rates for longer and a loss in earnings momentum would challenge our overweight position. In bond markets, credit has performed well, and investment spreads over gilts have fallen into low historic ranges. We, therefore, maintain a preference for government bonds over investment grade and high-yield bonds. Although held in alternatives, the yield on cat bonds remains elevated compared to traditional bond markets, making the asset class attractive. We remain optimistic about the return profile in 2024. After such a strong first quarter period we may yet experience some volatility as we transition from the high interest rate environment. It is sensible to maintain a diversified portfolio because of various factors. Politically, we may see shifts in policies and governments due to many elections. Geopolitics dominates much discussion, and risks to sentiment and supply-side inflation remain due to tensions in Asia, the Middle East, and Europe. However, looser future monetary conditions should be a positive backdrop for risk assets, and we are constructive about prospects.

Fund Managers

Simon Hodges

Portfolio Manager and Deputy Head of Portfolio Management UK
London

Multi-asset

Detail

Alec McNeill

Portfolio Manager and Deputy Head of Portfolio Management UK
London

Multi-asset

Detail

Find out more

Disclaimer

MARKETING COMMUNICATION

For professional clients, qualified investors and accredited investors only. The value of investments and the income derived from them can fall as well as rise, your capital is at risk. Note: Past performance is not a guide to the future. Returns may increase or decrease as a result of currency fluctuations.

All sources: EFG Asset Management (UK) Limited ("EFGAM"), Factset, Bloomberg, Morningstar as at end of the month. Any other sources as applicable.

This document has been produced by EFG Asset Management (UK) Limited for use by the EFG International ("EFG Group" or "EFG") worldwide subsidiaries and affiliates within the EFG Group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389736. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.

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More complete information on the fund can be found in the relevant memorandum and articles of association, prospectus, key information document, the addenda, the supplements and the most recent audited annual report and the most recent semi-annual report. These documents constitute the sole binding basis for the purchase of fund units. Copies of these documents are available free of charge and may be obtained upon request from www.newcapital.com and also as follows:

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United Kingdom: from the UK facilities agent, EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AF, United Kingdom

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Information for investors in Australia:
For Professional, Institutional and Wholesale Investors Only. This document has been prepared and issued by EFG Asset Management (UK) Limited, a private limited company with registered number 7389736 and with its registered office address at Park House, Park Street, London W1K 6AP (telephone number +44 (0)20 7491 9111). EFG Asset Management (UK) Limited is regulated and authorized by the Financial Conduct Authority No. 536771. EFG Asset Management (UK) Limited is exempt from the requirement to hold an Australian financial services licence in respect of the financial services it provides to wholesale clients in Australia and is authorised and regulated by the Financial Conduct Authority of the United Kingdom (FCA Registration No. 536771) under the laws of the United Kingdom which differ from Australian laws. This document is personnal and intended solely for the use of the person to whom it is given or sent and may not be reproduced, in whole or in part, to any other person.
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Offering Documents

Neither this document nor any document under which Interests in the New Capital UCITS Fund plc (the “Fund”) are offered is a prospectus, product disclosure statement or other formal disclosure document under the Corporations Act. Interests in the Fund may not be offered, issued, sold or distributed in Australia other than by way of or pursuant to an offer or invitation that does not need disclosure to investors either under Part 7.9 or Part 6D.2 of the Corporations Act, whether by reason of the investor being a wholesale client (as defined in section 761G of the Corporations Act and applicable regulations) or otherwise. Nothing in this document nor any document under which interests in the Fund are offered constitutes an offer of interests in a financial product or financial product advice to a 'retail client' (as defined in section 761G of the Corporations Act and applicable regulations).

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