The last shock (COVID-19) feels like it is over. The new shock (Russia’s invasion of Ukraine) has just begun. 

The unexpected actions of Russia have spiked already powerful inflationary pressures. All major commodity markets are in turmoil, as the West opts for economic rather than military war. An already stretched, fragile, global economy, is poorly equipped with shock absorbers. It lacks stockpiles, ‘fat’ supply chains full of slack, or the insurance of local, flexible, sources of supply. 

What constitutes a ‘defensive’ stock, like during COVID-19, is breaking with expected norms. During COVID-19, large tech proved surprisingly defensive. For this shock it looks like commodity related stocks are the new defensives. The Long-only portfolio outperformed the benchmark this month. Our January increases to value-recovery stocks in the ‘old’ economy helped drive alpha; in areas such as heavy industry and banks. There is a lot of scepticism about the path for further recovery for both, and there are some well-managed, decent companies, with chastened, conservative CEOs. 

Read more