International and Global Markets Commentary & Investment Outlook


Equity markets declined in the first quarter and exhibited heightened volatility. Inflation has remained elevated, and its containment is the near-unanimous priority for the major central banks. The Federal Reserve (Fed) and others have responded by tightening. The war in Ukraine is the latest factor to upset the global economic picture, as it is likely to dampen growth and simultaneously push inflation even higher. And therein lies the challenge: higher inflation and softer growth.

In this inflationary environment, we have made ongoing adjustments to portfolios by emphasizing holdings that we believe are well-suited to transmit pricing power or are valued more attractively. These attributes should help protect against two of the most pernicious effects of inflation for equity investors, namely the compression of profit margins and the compression of valuation multiples. Furthermore, our investment philosophy, which emphasizes businesses that benefit from secular trends and possess strong competitive advantages, means that portfolios can outgrow the market over the long-term. Thank you for entrusting us to invest your precious capital and to navigate this increasingly uncertain market environment.

Market Update

After weeks building up a large military force along its border with Ukraine and in neighboring Belarus, Russia launched a full-scale invasion of Ukraine in late February, marking a grim new chapter for the European continent. Russia’s aim is to threaten any future ambitions of the North Atlantic Treaty Organization (NATO) and to overrun Ukraine and depose its pro-Western government.

Russia is the 11th largest economy in the world. It is a major supplier of energy to Europe, accounting for 40% of the eurozone’s natural gas supply, and it is also an important source of metals, fertilizers, and wheat worldwide. The U.S. and its Western allies have imposed a wide array of economic penalties to punish Russia. President Biden has said they were designed to weaken the ruble, crash the Russian stock market, and erode the Russian economy. These penalties have included blocking the Bank of Russia from accessing foreign currency reserves and removing some Russian banks from the Swift network of international interbank payments. Additionally, many large multinational corporations have curtailed, or stopped outright, their business operations in Russia. So far, Russia has been undeterred by Western sanctions, proceeding further with the invasion of Ukraine on multiple fronts.

Inflation has continued to broaden out. U.S. personal consumption expenditure (PCE) inflation reached 6.1% in January and has stayed above the Fed’s target inflation rate of 2%. The bout of inflation has several causes, many linked to the pandemic. For one, consumers are flush with savings accumulated from depressed levels of household spending and stimulus programs in the early stages of the pandemic. Since then, the reopening has seen a big snapback in the demand for goods and services. Second, supply bottlenecks have arisen from the reopening and ranged from component shortages to transportation shortages. The added costs, at every step, have led to higher prices. Third, labor markets have tightened rapidly. The unemployment rate reached a pandemic high of 14.7% and has since fallen to 3.8%, and current wage growth is near its highest pace in years. Unemployment is already below the Fed’s estimate for the natural unemployment rate, which is 4%, below which price and wage pressures can build. In an expected move and in order to stave off high inflation, the Fed raised interest rates to a range between 0.25% to 0.5%. It has also penciled in a series of six additional rate hikes by the end of this year.