The news flow in March was almost completely dominated by the US-Israeli attack on Iran and subsequent retaliatory actions, particularly in the vital shipping lane of the Strait of Hormuz. The resulting surge in the price of oil and natural gas led to energy companies understandably seeing their share prices rise, and the overall equity market fall. What is somewhat surprising is that market falls were not more significant, with the benchmark MSCI World index down only -6.4% in dollars in total return terms. This seemed moderate as the economic and geopolitical ramifications of the war could be significant, and the valuation level of the market high. The destruction wrought so far is likely to affect energy, basic materials, shipping and supply chains for a minimum of months. Any continuation or further escalation would lengthen the ultimate period of disruption and we welcome diplomatic efforts in the search for an end to the conflict.

Whilst the market is trading at high valuations overall, the fund’s portfolio is, on the other hand, trading cheaply in the market. This did not prevent its valuation falling further than the market as a whole in March. Thus the valuation gap between the portfolio and market that we have described at length in recent times has widened further. Given that the portfolio is, we think, relatively well insulated to economic swings and energy market volatility, these moves highlight again the nature of the equity market at the current time. Thematics rather than fundamentals appear to be driving moves, exemplified by the US market’s three percentage point rise toward the end of the month on the back of US President Trump’s musing that the war might be over in two or maybe three weeks. In such a market we keep sight of the fundamentals and trust that valuations ultimately matter in the long-term.