Online Portfolios: Quarterly Portfolio Review – Q2 2023

Economic and Market Overview

The second quarter saw interest rates rise in the key developed economies, whilst inflation remains above central banks’ target, a key concern for the policy makers. The inflation data remains a dominant point of attention for the markets as it attempts to figure out how much higher rates are likely to go. The rates are nearing its peak in the US as inflation fades, meanwhile, the UK is expected to raise rates further as inflation remains relatively sticky but expected to come down. Commodity prices, a key contributor to inflation experienced a decline during the quarter – oil prices eased off with the expectation that demand is expected to drop as major economies gradually enter into a recessionary phase. The UK avoided entering a recession at the start of the year, while growth in the US remained positive. However, the Euro Area entered a small technical recession. On the political front, the US debt ceiling drama and recent escalation in Russia-Ukraine conflict were key factors that kept markets volatile during the quarter. June saw a counter-offensive by the Ukrainian army and a rebellion by parts of Russia’s mercenary army, the Wagner Group. Meanwhile, the OPEC and its partners (OPEC+) decided on June 4 to maintain its production cut targets for 2023, but agreed to set a new, lower target for 2024.

Global equities gained during the second quarter with US & Japanese equities outperforming and China underperforming. Japan’s Nikkei 225 Index took a leading position during the quarter under review with 18.4% return and above 27% on YoY basis. The US equities barometer, S&P 500 Index, surged 8.3% in the second quarter and DJ Islamic Markets Index increased by 7.27% while EU STOXX 600 posted 0.9% only. The US equity market performed strongly during Q2 and the first half of 2023 – mainly due to growth stocks in the technology sector, driven by Chips and Artificial Intelligence (AI) enthusiasm. Year-to-date US equity market returns have been driven by just seven companies, namely Apple, Microsoft, Alphabet (Google), Amazon, Nvidia, Tesla and Meta (Facebook). These stocks make up nearly 26% of S&P 500 index. However, the Chinese Shanghai Index declined by 2.2% and UK FTSE 100 Index dropped 1.3% during Q2 2023. During periods of uncertainty, investors generally prefer safe haven assets, however, they dropped in value in the second quarter. DJ Commodity Index plunged almost 5%, crude oil declined by 6.6%, gold dropped 2.4%. Moreover, DJ Sukuk Index ended the second quarter almost flat.

Portfolio Commentary

Global equity markets rallied during the quarter, whilst commodities dropped and sukuk index remained almost flat. The three lowest risk portfolios, namely, Defensive, Conservative and Cautious portfolios went down in value due to relatively higher exposure to sukuks that are mostly US dollar denominated. With pound rising by almost 3% against the US dollar, the performance of these portfolios was adversely impacted. Nevertheless, our relatively higher exposure to equities in portfolios at the lower end of risk spectrum limited the overall portfolio downside. Meanwhile, Balanced, Balanced Growth, Growth and Progressive Growth portfolios performed positively due to sizable equities exposure, however, the upside was constrained as commodities and sukuk portion of the portfolio was a drag on the overall performance.

Performance of Simply Ethical Online Portfolios in Q2 (01 Apr 2023 – 30 Jun 2023)

Year to Date Performance of Simply Ethical Online Portfolios (01 Jan 2023 – 30 Jun 2023)

During second quarter, a number of changes were made to the portfolios. We adjusted the sukuk allocation for Defensive, Conservative and Cautious portfolio to include a new sukuk fund called HSBC Global Sukuk Index fund. This should further diversify the sukuk portfolio, but also reduce the overall Total Expense Ratio (TER) for the portfolios as the fund has a lower fund management expense than existing holdings. The allocation towards gold has been reduced to capitalise some gains and replace the remaining holdings in WisdomTree Physical Gold with The Royal Mint Physical Gold as it has lower TER and better ethical standards. We introduced WisdomTree Physical Silver in Cautious and Balanced portfolios. On the equities front, for all seven portfolios we replaced all the iShares MSCI Islamic equity ETFs with HSBC MSCI Islamic ESG ETFs as they incorporate ESG standards in their investment methodology. Moreover, non-compliant income purification is addressed within the ETFs. Furthermore, we reduced our exposure to US equities in favour of Europe to capture gains from the recent market rally in the US and to move towards relatively better valued investments, along with raising our allocation for defensive sector.

The US stock market and the big ‘seven’ stocks in particular have performed really well over the past months, however, we can see growing divergence between the big ‘seven’ (forward PE ratio over 30) and the rest of the S&P 500 index (forward PE of around 15). But it’s important to remember that many risks remain for the economy and markets. Multi-decade highs in inflation, high interest rates, geopolitical tensions and rising recession risks pose a challenging environment. The impact of higher interest rates will increasingly be felt across the economies and restrictive monetary policy risks further exposing financial vulnerabilities, in particular in economies with high debt. Uncertainty over the evolution of Russia-Ukraine war and its global impact remains a concern. As your active investment manager, we remain vigilant on prevailing risks and continue to manage risks and adjust portfolios where appropriate.

To learn more about our investment approach and how we can help you, book a free initial consultation with one of our Financial Advisers.


Data as of 30 June 2023. This article is for information only. Please do not act based on anything you might read in this article. Past performance is not a reliable indicator of current or future returns. This article contains general information only and does not consider individual objectives, taxation position or financial needs. Nor does this constitute a recommendation of the suitability of any investment strategy for a particular investor. It is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy to any person in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it would be unlawful to market such an offer or solicitation.

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