SMF monthly update

Welcome to your monthly update from the Aviva Investors' Multi Assets Team.

February’s top 3 investment trends

1. Stickier inflation worries lead to fixed income pains

Markets saw signs that inflation was going to be more sticky than originally predicted. All major fixed income markets after a strong January posted negative returns this month, with Gilts (-3.5%) and global corporate bonds (-2.5%) suffering the most.

2. Equities markets have a mixed month

Following strong performance in January, equity markets fortunes varied as they too were affected by persistent inflation worries. While UK (+2.2%) and European (+2.1%) equities saw a positive return in January, all other major equity markets posted negative returns with emerging market (-3.6%) and Asia Pacific ex Japan (-4.4%) equities being the worst performers.

3. UK-EU Northern Ireland agreement

Finally, the Brexit deal struck with the EU regarding Northern Ireland caused pound sterling to strengthen, which will have hampered the performance of unhedged overseas equities this month.

February’s market performance 

Intergenerational definitions

How did the underlying assets perform?

Growth assets

Our active overweight positions in European energy and UK equities were amongst the best performers in February. However, emerging market equities and Asia Pacific ex Japan equities detracted from performance.

Defensive assets

Fixed income, across both sovereign and corporate bonds, had a negative month given fears of inflation being more persistent. Being underweight defensive assets will have been beneficial for active returns.


Uncorrelated assets produced a small negative return. 

Key active management decisions in February

  • Added a new position in US healthcare as we believe the prospect of innovation coupled with the defensive properties of the sector continue to offer useful diversification from portfolios.
  • Reduced UK equity to book profit, following the recent strong performance. 

Market outlook: what do we believe happens next?

  • We expect core inflation will remain above the central bank targets of 2 per cent throughout 2023.
  • Central banks primary focus will continue to be bringing inflation down to target over a horizon that doesn’t create too much economic pain.
  • In our central projection, we expect the Federal Reserve, ECB and Bank of England to reach the peak of the tightening cycle by the end of 2023 Q2, with rates of around 5 per cent, 3 per cent and 4 per cent, respectively.
  • Our core scenario is that most developed economies will fall into a relatively mild recession, with the United Kingdom and Eurozone at the forefront, followed by the US later on in 2023.

Important Information

Aviva Investors manage the Smooth Managed Funds on behalf of Aviva Life & Pensions Ltd. The opinions expressed are based on Aviva Investors Global Services Limited (Aviva Investors) internal forecasts and should not be relied upon as indicating any guarantee of return. The value of an investment in these funds and any income from them can go down as well as up. Investors may not get back the original amount invested.