March 2023 Investment Summary

For our March 2023 Investment Summary, we take a closer look at the latest news and market trends we are seeing take place this month.

This was one of the more exhausting months that we have seen in financial markets in quite some time. There were moments where it reminded me of worst parts of the Global Financial Crisis of 2008/9.

Over the course of a weekend, the US experienced two bank failures, namely Silicon Valley Bank (SVB) and Signature Bank, while there were serious concerns surrounding others. The yield on the two-year US Treasury note climbed above 5% early in the month, but then collapsed below 4% in just a few days. In addition, Credit Suisse, the well-respected global investment bank and wealth manager, was acquired by its long-term competitor UBS in a hastily arranged government backed takeover (see UBS company announcement here).

Despite the banking turmoil, the US Federal Reserve (Fed), Bank of England (BoE), and European Central Bank (ECB) all raised interest rates. Meanwhile, former President Trump was indicted by a grand jury in New York City. I am sure I have left something out!

Global equities were very much a mixed picture. The S&P 500, NASDAQ, Euro Stoxx 50, and the Nikkei 225 all posted gains, while the FTSE 100 and CSI 300 lagged their global peers. In contrast, fixed income generated positive returns as markets continued to price in central bank rates cuts within the next year or so.

Let’s look through the noise of March and focus on the broader themes influencing the markets. To start, we are beginning to witness the effects of the significant rates hikes implemented over the past year, but they’re not playing out as central banks expected or hoped. Central banks anticipated weaker labour markets, slower demand growth, and significant decreases in inflation, but that hasn’t happened – yet. Instead, we’re seeing money move from banks to short-term government securities. Given advances in internet banking and the rapid spread of news on social media, deposit flows can happen very rapidly to the detriment of unprepared banks (SVB most notably).

In the US for example, one can now earn over 4.5% in 3-month US Treasury bills, while most banks are offering meagre rates of 1% or so on deposits. As a result, many depositors are moving their money out of banks to chase better returns. According to Refinitiv Lipper data, US money market funds had received over $270bn of inflows in March alone. This is exposing banks to the classic risk of borrowing short and lending long. Banks typically lend out short-term demand deposits while investing in long-term loans and securities. However, interest rates have been low for an extended period, resulting in losses on virtually all fixed income securities banks have purchased over the past decade. Normally, banks manage this risk, but some banks, like SVB, have not properly hedged their interest rate exposure. This mismanagement has caused some US politicians to criticise the Fed and regulators for not catching the problem earlier. There is some truth to this as the stress tests that banks undergo did not account for rising interest rates. They only looked at a repeat of the Great Financial Crisis, i.e., falling interest rates, an economic slowdown, and deflation. What is that saying, “generals always fight the last war”? Fortunately, the large banks in the US that hold the majority of household and business deposits are well-capitalised and are not indicating systemic risk from deposit flight.

The ongoing fight against inflation (a second theme) is currently influencing markets, but progress is not as quick as central banks would like. Despite coming off its highs from last summer, inflation remains above the 2% target set by most central banks. Tight labour markets and low unemployment levels suggest that more interest rate hikes and slower growth will be necessary. Until inflation moves closer to the target, it is unlikely that central banks will lower interest rates as the market currently expects. The Fed did acknowledge that the banking issues in the US, and the resultant tightening of lending conditions, acted like a rate hike. This may result in a Fed pause, but we are not yet able to suggest a Fed cut is on the horizon. In contract, the ECB and the BoE have not experienced the same kind of banking issues and we expect they are not yet near pausing their policy tightening strategy. This may result in some continued weakness for the dollar versus the euro and pound sterling.

The impact of higher rates is still being felt. There has been a lot of noise about the commercial real estate market and no doubt there are vulnerabilities there. But unlike bank deposit flight this will be more of a slow-motion revelation of losses and deflation of valuations. As mortgages are refinanced at higher rates problems will be revealed. The change in work habits has companies re-evaluating their office space needs and demand for office space is falling. Private credit and equity markets will no doubt have challenges as well. Refinancing debt when interest rates are 400 basis points higher than a year ago is not going to be easy or pleasant. The impact of higher rates is complex and multifaceted, and its effects will continue to be felt for some time to come.

The new Governor at the Bank of Japan, Kazuo Ueda, takes charge on April 8th. Japan remains the only central bank with negative rates and a policy of purchasing government bonds to hold yields at exceptionally low levels. The yen is weak, inflation is above target, and the scale of bond purchases is staggering. A change is coming. We need to watch this closely as Japan has been a major exporter of capital to the rest of the world. Were they to export less or heaven forbid repatriate capital, the world would feel it.

We still expect economic growth to slow, interest rates to stay high or rise a bit further (to ensure the desired growth slowdown). Corporate earnings and earnings growth will be softened, and this will take the steam out of the recent equity rally.

As we draft this letter OPEC has just announced a 1 million barrel a day production cut which emphasises to us the vulnerabilities in the energy space, and it is why we remain confident holding the energy sector.

Our current positioning has been adjusted by extending our fixed income duration and making slight tweaks to our equity exposure to adopt a more defensive stance. We continue to feel being conservative and cautious with our positioning is the best approach.

Read more from our Chief Investment Officer Jeff Brummette in our Investment Summary for February 2023. Stay tuned for more insights from Oakglen on the hot topics and latest trends in the financial markets. You can also sign up to our mailing list for more regular communications using the section below.

Jeff Brummette
Chief Investment Officer


This document is distributed by Oakglen Wealth Limited and / or Oakglen Wealth (Jersey) Limited (hereafter “Oakglen”) to you for your information and discussion only. Unless otherwise stated nothing in this document constitutes investment, legal, accounting, real estate, conveyancing, surveying or tax advice, or a representation that any investment is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. It is not a solicitation or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions or quotations, may be condensed or summarised and is expressed as of the date of writing. The information may change without notice and Oakglen is under no obligation to ensure that such updates are brought to your attention. The price and value of investments and any income that might accrue could fall or rise or fluctuate. The price of shares and income from them may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment. A change in the economic environment, possible changes in the law and other events may cause future performance to deviate from that expressed or implied in this document. Please note that past performance, simulations and forecasts are not a reliable guide to future returns. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. Investing in Packaged Retail and Insurance-based Investment Products (PRIIPs) carries a high level of risk and may not be suitable for all investors.

Any information provided by a client and used to produce this document will have been checked by Oakglen for plausibility only and the client notified accordingly of any obvious anomalies. This document and any related recommendations or strategies may not be suitable for you; you should ensure that you fully understand the potential risks and rewards and independently determine that it is suitable for you given your objectives, experience, financial resources and any other relevant circumstances. You should consult with such adviser(s) as you consider necessary to assist you in making these determinations. The opportunities and risks associated with each investment product can be found in the relevant underlying securities prospectus and any other supplementary documents. All documents will be made available at any time upon request.

Oakglen does not advise on the tax consequences of investments, and you are advised to contact a tax adviser should you have any questions in this regard. The levels and basis of taxation are dependent on individual circumstances and are subject to change. This document may relate to investments or services of an entity/person outside the United Kingdom, or to other matters which are not regulated by the Financial Conduct Authority, or in respect of which the protections of the Financial Services Compensation Scheme. Further details as to where this may be the case are available on request in respect of this document. Additionally, this document may relate to investments or services of an entity/person outside Jersey, or to other matters which are not regulated by the Jersey Financial Services Commission, or in respect of which the protections of the Jersey Financial Services Commission for retail clients. Further details as to where this may be the case are available on request in respect of this document.

This document has been prepared from sources Oakglen believes to be reliable, but we do not guarantee its accuracy or completeness and do not accept liability for any loss arising from its use. Oakglen reserves the right to remedy any errors that may be present in this document. Oakglen, its affiliates and / or their employees may have a position or holding, or other material interest or effect transactions in any securities mentioned or options thereon, or other investments related thereto and from time to time may add to or dispose of such investments.

This document is intended only for the person to whom it is issued by Oakglen. It may not be reproduced either in whole, or in part, without our written permission. The distribution of this document and the offer and sale of the investment in certain jurisdictions may be forbidden or restricted by law or regulation. This communication does not constitute the solicitation of an offer to purchase or subscribe for any investment or service in any jurisdiction where, or from any person in respect of whom, such a solicitation of an offer is unlawful.

Investments may have no public market or only a restricted secondary market. Where a secondary market exists, it is not possible to predict the price at which investments will trade in the market or whether such market will be liquid or illiquid. As such, for investments not listed or traded on any exchange, pricing information may be more difficult to obtain, and the liquidity of the investments may be adversely affected. A holder may be able to realise value prior to an investment’s maturity date only at a price in an available secondary market. The issuer of the investment may have entered into contracts with third parties to create the indicated returns and/or any applicable capital protection (in part or in full). The investment instrument's retention of value is dependent not only on the development of the value of the underlying asset, but also on the creditworthiness of the Issuer and / or Guarantor (as applicable), which may change over the term of the investment instrument. In the event of default by the issuer and/or Guarantor of the investment, and / or any third party the investment any income derived from such contracts is not guaranteed and you may get back none of, or less than, what was originally invested. Parties other than the Issuer or Guarantor (as appropriate) mentioned in this document (for instance the Lead Manager, Co-structurer, Calculation Agent or Paying Agent) do neither guarantee, repayment of the invested capital nor financial return on the investment product, if nothing is indicated to the contrary. Any capital protection given is usually an inherent part of the product; provided through the use of options, futures or other derivative products. You may have to accept smaller returns on an investment relative to a direct investment in the underlying index, basket, etc. because of the costs involved in providing the capital protection. Such capital protection normally only applies if the investment is held until maturity. The amount of initial capital to be repaid may be geared, which means that a fall in the underlying index or securities may result in a larger reduction in the amount repaid to investors. Alternative investments, derivatives or structured products are complex instruments that typically involve a high degree of risk and are intended for sale only to investors who are capable of understanding and assuming the risks involved. Structured products carry counterparty risk, in that in the event of default by the issuer you may lose some or all of your capital invested even when the product carries capital guarantees. Where this document relates to emerging markets, such investments should be made only by sophisticated investors or experienced professionals, who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments and have the financial resources necessary to bear the substantial risk of loss of investment in such investments.

The services described are provided by Oakglen or by its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Certain products and services may not be available in all locations or to all Oakglen clients.

Data Source: Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited, otherwise specified.

Oakglen is a registered business name of Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited.

Oakglen Wealth (Jersey) Limited is regulated in Jersey by the Jersey Financial Services Commission for the conduct of Investment Business and is a limited company with company number 121454, incorporated in Jersey on 7 June 2016. Its business address is 4th Floor, 1 IFC, St Helier, Jersey, JE2 3BX.

Oakglen Wealth Limited is authorised and regulated by the Financial Conduct Authority. The registered address of Oakglen Wealth Limited is 30 Golden Square, London, United Kingdom, W1F 9LD and is registered in England and Wales with number 13182724.