Commentary I February 2022
Commentary I February 2022

Welcome to the ‘New World Disorder’.

After supply chains were disrupted following the Covid Pandemic, the Eastern European conflict has in turn unsettled world trade leading to spiking prices of many raw materials, energy and shipping. Sanctions on Russia also upset traditional money flows in the Eurodollar system (Dollars exchanged outside of the US). Unconnected countries such as Sri Lanka and Nigeria were starved of much needed ‘hard’ currency funding as a result. To address this unfolding ‘new’ monetary disorder, Western Central banks have remained unusually silent.

In spite of ASG’s defensive positioning in 2021, events in Ukraine have weighed heavily on the valuations of assets remaining in the portfolio and thus undermined its 2022 performance.

Looking forward, the current financial fallout is likely to be temporary, as it was after the initial stages of the Covid crisis. Two possible outcomes seem ahead of us. The liquidity and financial conditions could worsen thereby triggering a Central Bank response to stabilize and restore confidence in assets markets at some point. Alternatively, a negotiated arrangement could be reached bringing about a more settled geopolitical environment.  

ASG sold 20% of the portfolio for cash in February, mainly short dated bonds marginally affected by the mark down in valuations indicated above. This liquidity offers the fund a reinvestment opportunity to move on to higher yielding instruments, currently trading at ‘fire sale’ prices. In view of the continuing uncertainty, ASG will only progressively be rolling out this adjustment. The ultimate objective is to work towards an optimal positioning the fund for a future upside performance coming out of the present day crisis (as we did in 2016, 2018 and 2020). Furthermore, the fund holds an additional 15% to 20% of short dated bonds available for other arbitrage operations in the future.

Any military conflict leads to a period of great financial and economic uncertainty. Under such conditions, US Dollar assets provide a distinct advantage compared to those in other currencies. With the world’s reserve currency and the largest most sophisticated capital market, many international investors turn to the USA for investment refuge. ASG remains confident in its investment focus which seeks to benefit from the Fixed Income yield returns (now at over 6%) of large household corporations, in a currency many international investors are looking to hold, the US Dollar.


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