Inflation and interest rate increases were one of the main topics dominating the beginning of 2022. Headlines are now been dominated by Russia’s invasion of Ukraine, which began on 24 February is a humanitarian and economic crisis which has implications for the global economy. We’ve seen how the equity market has been negatively impacted by this humanitarian crises as well as how volatility has increased and the market moving can move to safe haven assets it now has . Oil prices have also surged, reaching the highest price levels since 2008 and exacerbating the inflation headline number. All U.S. sectors in February declined except for the energy sector which benefited from the steep increases in oil and gas prices; Europe equities market also underperformed mainly due to their reliance on Russia’s energy products.
In terms of the portfolio, the best stock performers for the month were Arena Reit which was up 8.2%, Cincinnati Financial up 4.2% and Nintendo Co. up 4%. While the worst performers were Paypal down 35.7% and HelloFresh down 13.6%- both stocks have been sold out of the fund . PayPal reported great numbers for FY21 and Q4 FY21, but disappointment came in with their forward guidance. Overall, for the year net revenue was up 18% year-on-year to $25.4bn due to the growth in TPV (Total Payment Volume is the value of payments which have gone through their platform) has gone up by 33% to $1.25trn and their total active accounts increased by 48.9 million to 426 million. Management said that they had to close 4.5 million accounts as people were trying to take advantage of the company’s rewards and incentive programs, as a result they had to lower their guidance for net new accounts additions which disappointed the market. Furthermore, the company is only expecting revenue growth of 6% for Q1 FY22, which is way lower than the revenue growth rate of 31% that they had in Q1 FY21. The company will now be undergoing a transitional period where they’ll focus more on quality than quantity i.e., they’ll spend money on high-value accounts to increase engagement than trying to aggressively attract new customers. HelloFresh released their FY21 and missed market expectations. The company’s sales growth was lower than FY20 results but still reported high revenue growth of 60% to €5.99bn but due to high operating costs and an increase in their tax expense, net income declined by 31% to €256.3m. The company has been spending a lot on marketing to grow their digital platform as the projected profit contributions from customer cohort analysis is higher than customer acquisitions. Since 2018 they’ve been growing their meal kit brands through acquiring the niche competitors and they’re still growing their international presence, with U.S. being their largest market share. HelloFresh and its competitors saw high growth rate numbers during the start of the pandemic, but the boxed meal kits sector can be seen as fragile as dining out and travelling picks up.
Predicting anything in this market is risky, especially with so much uncertainty which has created volatility in the market. The fund has decreased its equity exposure in favour of large cash balances mostly in US Dollars and making up approximately 52 % of the overall Fund. Our long-term strategy looks promising and we are looking beyond the noise to entrance points in stocks we have in our watchlist.