Hello. This is Jeremy Richardson from the RBC Global Equity team here with another monthly update. And what a month it has been. At the end of last update, we spoke about how different opinions of volatility were noted between the bond markets and the equity market. Well, that seems to be resolved this month with rising volatilities in the equity market, really initiated by Jerome Powell retiring the word ‘transitory’. In his view, U.S. inflation is no longer going be short term in nature, and that positioned investors to expect tighter monetary conditions in the future.

The unfortunate thing this month has been that that has coincided with the emergence of this new variant, the Omicron variant, raising the prospect that just at the moment, that we might get tighter monetary conditions, we might also get renewed restrictions on mobility and lockdowns on social activity. That’s quite an unappealing cocktail, particularly at a time when a lot of companies are looking forward to stronger trading conditions, certainly, compared to this festive season, compared to where we were 12 months ago in 2020.

So the market has been very volatile as the tensions, the tug of war between these two opposing views have been playing out. On the one hand, what the effect of rising interest rates will be; on the other hand, just how sinister is this new variant? Well, in the last few days, the market seems to have been moving to the point of view that this new variant is actually going to be more transmissible, but not as impactful in terms of individuals’ health. It might be a milder expression of the Coronavirus. And if that’s the case, then there is less likelihood, one hopes, of tough mobility restrictions being required, particularly in the U.S. And as a result of that, it makes, maybe, then, this more hawkish, monetary policy more appropriate. So I think the last few days, actually, we’ve seen the equity markets sort of come to a happier place, if I can say that, because put those two things together, actually, it means that monetary policy, perhaps less scary than perhaps people were thinking initially, that maybe we might get a more benign outcome, then in effect, we might get sort of a soft landing, a normalization of monetary conditions, which will not be too strong a headwind for companies, and importantly, for economic activity.

Now, there are still risks associated with this, and we don’t know yet quite how sinister the new variant will be. We need much more scientific data to be able to say that definitively. And also, we don’t quite yet know what the Fed is actually going to do in terms of raising interest rates. So the breadth of possible outcomes still seems quite broad. And for stock pickers like ourselves, it would be natural, I think, that during a very sort of macro-driven market where we’ve got this two sort of systematic, those big exogenous issues, which the market is trying to wrestle with, that the returns from stock picking are going to be somewhat muted during this kind of period. And that’s broadly what we’re seeing. But importantly, it’s the risk management piece here. That means that you don’t end up, particularly, on one side or other of this big macro tug of war as stock, because you really want be sort of stuck in the middle to some respect, so that if one side or the other prevails, it’s less likely to come through in terms of the active returns that investors experience. And for the moment, at least, that’s the type of approach that leaves strong, great businesses at attractive valuations, coupled with that disciplined risked management, seems to be paying off.

So I hope that’s been of interest to you. And given the time of year, I hope it’s not amiss of me to wish you and your families a very happy and peaceful festive season. I look forward to speaking to you next time.