Hello. This is Jeremy Richardson from the RBC Global Equity team here with another update.

I used to work with a colleague who always used to say that bad news came in threes. Usually he’s talking about company announcements, but it feels as though the bad news has been coming in terms of the geopolitics and the macro situation.

Obviously, first of all, we had the global pandemic, which had the effect of significantly just disrupting supply chains, which in itself was quite inflationary as we ended up exiting the pandemic. But obviously, February, March, we saw the invasion of Ukraine by Russia, which had profound impacts for a number of different levels, but from an economic point of view, very significant price increases from energy. And again, supply chains being disrupted.

Now as April has drawn to a close, we have the possibility of a third impact being the arrival of more widespread coronavirus infections in China. Shanghai has been locked down for a number of weeks now, and there are concerns that Beijing may be forced to take similar steps. The consequence of this could be significant for global supply chains and represent a third and very unwelcome macroeconomic disruption, which has the potential to be inflationary again.

Now the reason for mentioning all of this is that the stock market has been reeling under these pressures over the course of April, down by around 8% in U.S. dollar terms over the month.

And unfortunately, what often happens at this time of year with the Q1 earnings season is that investors’ attention focuses back on the company fundamentals. But in the face of this macroeconomic bad news, investors have instead been somewhat distracted from the individual company announcements.

Moreover, company management teams, although have been able to report results which have generally been better than the market has been expecting, the focus has been instead very much on the outlook statements from companies. And given the amount of uncertainty and the fact that we’re so early in the calendar year, a lot of those outlook statements have left something to be desired, which has meant that there hasn’t been that sort of positive dynamic to equity markets over the course of the month.

However, we always need to look forward. And I think as investors, we’ve been really focusing on two things: firstly, our source of alpha, which we still very much believe in. We would observe that in the current amount of volatility that we’re seeing in markets, investors have been focusing very much on the short term, particularly on tangible value and short-term cash flows, and ignoring a lot of those longer-term, more intangible drivers of long-term value creation. Out of sight is out of mind, and so to an extent the fact that they have been overlooking these sources of longer-term value creation. That, to our mind, means that there continues to be significant amount of opportunity of underappreciated alpha latent within a lot of these great businesses we try and invest in.

But the second thing we’ve been thinking about also is around the risk profile of the portfolio, given this increase in heightened volatility. And we think it’s very important to maintain that discipline of having a well-balanced portfolio, for when the focus does settle down and refocus again on those longer-term value drivers, it’s really important the portfolio is well balanced and in a good position to be able to capture that alpha when it starts to come through again.

I hope that’s been of interest, and I look forward to catching up with you again soon.