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Markets are rocky. Here’s what we’re doing about it.

Clim8 Investment Team

21 January 2022 Sustainable Investing

A dry month for the markets

It’s fair to say that the first few weeks of 2022 have seen a lot of change in the markets.

Rising inflation across major economies means that central banks are expected to raise interest rates soon, and the markets have responded accordingly – docking the value of long-term bonds like green bonds1, as well as high growth, high valuation companies. In fact, over a third of Nasdaq-listed companies have lost more than half their value since their recent highs, as well as some of our companies in the climate tech space.

This has had a knock-on impact on the value of the Clim8 portfolios. From their early December peak, our portfolios have fallen by 9.50% for Adventurous, 7.95% for Balanced and 6.01% for Cautious2. This is because our portfolios are more exposed to high-growth companies and green bonds by design, given our climate-focused mission.

We’ve changed course without missing a beat

So, the start of the year has been far from ideal. But as the markets change, so do we. Some of the recent portfolio changes that have been implemented include:

  • On equity, shifting the focus to funds with stronger short-term cash flows while de-emphasising long-term growth.
  • On bonds, switching to funds that are less sensitive to interest rate increases.
  • On asset classes, investing in more European CO2 allowances, as we think their price will rise.

In other words, we are working hard with the aim of navigating our ship to calmer waters while remaining committed to our long-term climate-focused strategy.

What’s the bigger economic picture?

It’s always crucial to put short term market movements in the context of longer term trends. Here are the key takeaways from our 2022 macroeconomic outlook, which gives us – and you – a clearer view on what’s most likely to happen this year across the global economy.

  • Because inflation is now the central banks’ number one concern4, they will very likely have to raise interest rates and reduce excess liquidity from the system soon.
  • We believe the world economy is strong enough to absorb the shock from these changes, potentially offsetting the negative impact on asset prices.
  • We might not see equities performing as strongly this year, but we still think there will be opportunities to make selective longer-term investments.

Read our 2022 Macroeconomic Outlook

What about progress on the climate agenda?

Recent events haven’t taken our eye off the ball when it comes to climate. Here are some of the main developments we expect to see this year, based on our 2022 climate and policy outlook.

  • COP27 will hold governments’ COP26 promises to account against their actions, with biodiversity on the agenda too.
  • Despite an uphill political battle, the US green agenda may finally pass. China is also planning to introduce a carbon price mechanism.
  • New regulations for companies and asset managers will ensure the sustainability credentials of investment products.

Read our 2022 Climate and Policy Outlook

With investing, your capital is at risk. Past performance is not a reliable indicator of future performance. Performance is stated net of fees, prior to the deduction of tax.

1 Performance between December 8th, 2021 and January 19th, 2022. Source: FactSet (the Lyxor Green Bond ETF lagged the Barclays Bloomberg Global Agg Bond Index by 1.1%).

2 Performance between December 8th, 2021 and January 19th, 2022. Source: FactSet, FE Analytics.

3 Our benchmarks are a mixture of the MSCI World Index for equities, and the Barclays Bloomberg Global Aggregate Bond Index for fixed income. 

4 Reuters