SMF monthly update

Welcome to your April 2024 update from the Aviva Investors' Multi Asset Team.

Top 3 investment trends – April 2024

1. Inflation is still sticky

Inflation has continued to be stubborn in April with US annual PCE inflation (the Fed’s preferred inflation measure) up by +2.7% in March vs 2.5% in February. On the growth side, Q1 US GDP growth data came in below expectations (+1.6% annualised vs 2.5% expected), although this was driven mainly by a fall in exports rather than any signs of US consumer weakness which on balance did little to ease investors’ concerns about sticky inflation. With insufficient progress made on the inflation front, investors continued to push-out their expectations for the timing of the first US rate cut by the Fed, which is now only expected in December. Markets are pricing a divergent interest rate cutting path for the Fed compared to the ECB and BoE, who are expected to begin cutting rates sooner.

2. Markets lose some steam

Most major equity regions suffered losses in April, with global equities down over 2.5% for the month. Notably, the S&P 500 saw its five-month streak of positive returns come to an end in April as persistent inflation concerns outshone strong tech earnings. Expectations that interest rates may need to stay higher for even longer meant that global fixed income markets also ended in negative territory in April. Bond yields rose, with the US 10-yr Treasury yield experiencing its biggest daily rise since September 2022 in reaction to the US CPI release.

3. The commodity rally continues

Commodities continued to rally throughout the month. Escalation of geopolitical tensions, persistent inflation and high debt issuance globally has led investors to seek out ‘safe haven’ assets. This has boosted the returns of commodities like gold, which increased by over 3% in April. Industrial commodities also saw strong returns this month. Copper was up over 12%, driven by its major role in the production of electronics, phone lines and renewable energy infrastructure.

April 2024 market performance 

Past performance is not a reliable indicator for future performance

Source: Morningstar as at 30 April 2024. All returns are in GBP and fixed income is GBP hedged.

How did SMF perform?

Growth assets

Most equity markets ended in negative territory this month, with the exception of UK, Emerging Market and Asia-Pacific equities. Stronger inflation and employment data out of the US, as well as an escalation of geopolitical tensions, dominated market sentiment globally. Our overweight positions in Japanese, North American and European equities would have detracted from performance this month, after having been positive contributors year-to-date.

Defensive assets

Concerns around more persistent inflation, and higher interest rates for longer, drove negative returns for global fixed income markets in April. Market expectations for interest rate cuts have been pushed out, especially for the Fed’s first rate cut this year which is now expected in December. Our overweight positions in Gilts and German government bonds detracted from returns, although some of this was offset by our short Japanese government bond position.

Uncorrelated

Uncorrelated assets produced a small positive return from the fund’s holdings in AIMS and property.

Key active management themes in April

1. Reduced our equity overweight

• We reduced our equity overweight positions in US, Europe & Japan to neutral to book profit, following the strong equity rally experience year-to-date. 

• Whilst Europe has shown greater progress on inflation slowing compared to the US, European bond yields look to trend higher as they mirror the rise in US Treasury yields.

SMF & SMF 2 Fund Price Adjustments (FPA)

There were no fund price adjustments in April 2024.

Market outlook and positioning: what do we believe happens next?

From an active asset allocation perspective, we have reduced our equity positions to neutral, to book the profits that have been made this year and last year. Although the global economy has remained resilient, continued sticky inflation and rising yields may ultimately reduce investors’ appetite for risk assets such as equity; particularly in the US, where higher inflation coupled with a strong economy may further delay rate cuts. That being said, we still hold a positive medium term view on equity.

In terms of our fixed-income allocation, we have two key tactical asset allocation positions: overweight UK gilts and short Japanese government bonds. Essentially, we believe Japan is at the start of its hiking cycle, with inflationary pressures likely to lead to further interest rate hikes by the Bank of Japan, following its exit from negative interest rates in Q1 2024. In regard to UK gilts, the continued relatively weaker growth outlook in the UK, compared to the US, could lead to more, or faster, rate cuts by the BoE.

Key risks

• The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency and exchange rates.
• Investors may not get back the original amount invested.
• The Fund uses derivatives, these can be complex and highly volatile. This means in unusual market conditions the Fund may suffer significant losses.
• The Fund Invests in emerging markets, these markets may be volatile and carry higher risk than developed markets.

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited ("Aviva Investors"). Unless stated otherwise any opinions expressed are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested.

For further information please read the latest Key Investor Information Document and Supplementary Information Document. The Prospectus and the annual and interim reports are also available on request. Copies in English can be obtained free of charge from Aviva Investors UK Fund Services Limited, St Helen’s, 1 Undershaft, London EC3P 3DQ. You can also download copies from our website. Issued by Aviva Investors UK Fund Services Limited. Registered in England No 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: St.Helen's, 1 Undershaft, London, EC3P 3DQ. An Aviva company.