Investment Update – The Crisis In Ukraine – 1st March 2022

The Crisis in Ukraine

I am sure you, like we, are watching with disbelief and horror as the events in Ukraine unfold. Our day to day job of making judgements on economics and markets seems entirely out of place at a time when ordinary Ukrainians are suddenly fleeing and fighting for their lives. It is bewildering that only a week ago, Ukrainians were living their lives as normal, going to work and taking their children to school.

In our recent market update on 14th February, we assessed the impact that various geopolitical events have had on markets in the past. At that time, we were still reasonably confident that sanity would prevail and there would ultimately be no invasion of Ukraine.

Although it seems inappropriate to comment on markets in the circumstances, I expect you may appreciate some context in brief.

Suffice to say, there are various markets and sectors which we are monitoring carefully. Our portfolios have extremely low, and in most cases zero, direct exposure to Russia. Russia itself is a very small part of the global economy (at 1.7% of world GDP) and doesn’t feature as a country in the MSCI World Index. However, Russia does have a significant impact on certain sectors, such as natural resources and traditional energy (oil & gas) and is a key supplier of gas to parts of Europe such as Germany. Our portfolios have almost no exposure to these sectors, for reasons unrelated to Russia.

Our main focus is on the wider impact of the crisis, such as the effect of higher energy prices and other commodities on general inflation. Both Russia and Ukraine are significant exporters of agricultural commodities (fertilisers, wheat and corn), metals (copper, aluminium and nickel) and semiconductor inputs (such as palladium). Shortages in these areas are likely to have an effect on the prices of food, cars, electronic gadgets, and industrial machinery. Our portfolios have been positioned for higher inflation for some time and this conflict is likely to mean more inflationary pressure.

Against this backdrop, we remain disciplined in sticking to our investment philosophy. Our portfolios are well diversified and designed to reduce volatility, and it is important to maintain a long term investment horizon in these uncertain times.

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