Mid Wynd International Investment Trust update

Inflation started falling in late 2022 as fuel prices declined. This gave a bullish tone to equity markets at the start of 2023 despite rising interest rates and a yield curve suggesting there may be a recession later this year.

CPI yoy inflation

Higher interest rates led to tech investors withdrawing deposits from Silicon Valley Bank, so that bank failed. More significantly, Credit Suisse failed, requiring the authorities to orchestrate a merger with UBS. Credit Suisse’s problems seem to stem from poor decision making rather than deposit flight. Banks and their regulators taking fright from these failures will tighten lending – which helps to keep inflation down. However, wage inflation seems stubbornly high and likely to remain a challenge for investors this year.

The fund trails the index

The company's NAV rose 1.4%* over the quarter, behind the MSCI AC World Index's return of 4.4%.

This underperformance was due to the low weighting the fund has in US equities, where we have struggled to find good value for money. The fund only has two bank shares: MUFJ and SMFG in Japan. Despite these seeing no deposit flight (you can only get zero percent on your savings there), these banks fell as much as others, so our relative performance did not benefit much from avoiding Western banks. The fund also lost money in real estate companies which fell as they were seen as relying too much on cheap loans. We have sold all but one of these holdings.

On the positive side, our best performing themes were:

• Luxury goods: as consumers go out more, they buy more luxury goods. The prospects of Asian markets now coming out from covid lockdowns suggests the rest of this year should be strong for this theme.
• Healthcare: Although drug stocks have generally not performed well, our theme dominated by US health insurance companies did well.
• Software: Our selected investments: Microsoft, Adobe and Salesforce seem to be regarded as reasonable value for their growth. However not holding other large digital companies such as Nvidia, Apple and Meta (Facebook) held performance back as the stocks did very well. 

Activity: selling real estate, Nestle and Colgate

Over the quarter we have sold most of the Real Estate investment Trusts. We have also sold both Nestle and Colgate as these have shown their ability to cope with inflation but offer low growth prospects in the longer term.

We have added to US technology holdings, finding better value for money after last year’s share price falls. We have bought Amazon, Salesforce and Adobe.

Outlook – Challenging times ahead…

Markets have performed strongly, rising around 15% in sterling terms since the gloom of last October. There are positive signs: jobs are plentiful, wages are rising, the Ukraine war seems not to be escalating, fuel prices are down. However, central banks continue to struggle with inflation and many companies find it hard to cope with higher rates after years of cheap money. We would not be surprised if the next few months were more challenging for investors and so we continue to concentrate our stock selection on the companies we have seen coping well over the last few years. They have grown cash flows through a pandemic, sharp rises in inflation and interest rates and we expect they will continue to grow even if economies slow and other challenges, both predictable and less predictable, arise.