Finance Monthly. 41 Business & Economy extrapolating the disappointment, ignoring the possibility that the numbers will start to match, or undershoot, forecasts.” Samantha Fitzpatrick, Fund Manager of Murray International Trust, said: “Headline inflation is already falling sharply almost everywhere and should continue to decline over 2023 due to energy base effects. However, core inflation remains elevated, including here in the UK. It also needs to be remembered that even a lower positive number still means prices are rising, not falling, or even staying the same, so inflationary pressures will not disappear anytime soon.” Chris Clothier, Co-Manager of Capital Gearing Trust, said: “We expect inflation to come down later this year, but at a slower pace than markets or the Bank had initially expected. A combination of supply and demand-side factors has served to keep inflation elevated. On one hand, supplyside factors such as tight labour markets and the prolonged impact of shocks from food and energy have kept input costs elevated. On the demand side, continued wage increases and longer fixed terms on mortgages have kept household spending elevated for longer. This experience of more protracted inflationary episodes is in line with historical experience: a study by Research Affiliates of OECD countries since 1970 showed that, once inflation has gone through a 6% peak on average it took seven years to fall back to 3%.” Where are you seeing investment opportunities in the current circumstances? Chris Clothier, Co-Manager of Capital Gearing Trust, said: “The bond market is replete with opportunities not seen for 15 years. We are attracted to UK Treasury Bills yielding more than 5%, short-dated investment grade corporate credit yielding between 6.0% and 7.5% and five-year UK index linked gilts offering real yields of 0.9%.” Samantha Fitzpatrick, Fund Manager of Murray International Trust, said: “At Murray International Trust, the soaring cost of borrowing led to £60 million of debt being repaid at the end of May this year. Our approach to gearing remains unchanged, in that it should always be driven by opportunity – can we make money on the debt? We are fortunate to be able to pick and choose what debt we decide to have in these uncertain times.” Andrew Bell, Chief Executive Officer of Witan Investment Trust, said: “Bond yields have risen from risible to visible and now offer a positive real yield based on longterm inflation forecasts. They can now just about fulfil their role as portfolio diversifiers and preservers of value but that is about it. In Western economies, long bond yields are lower than short-term yields, suggesting that the bond markets think rates will need to be cut in the next year. If central banks avoid overkill (and stop steering policy using the rear-view mirror) growth should pick up in 2024, which might slow progress on inflation and nudge long yields up but would benefit the parts of global equity markets that are pessimistically valued. Broadly, that means nonUS equities in cyclically sensitive sectors and those benefiting from enduring growth themes, of which two particularly interesting ones are the decarbonisation energy transition and the spread of AI.” “The market is forecasting a peak rate of just under 6% for Q1 2024.” “We expect inflation to come down later this year, but at a slower pace than markets or the Bank had initially expected”
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