Christmas fever was running high with beautifully decorated trees and colourful lights cheering us on every corner. The tone was however a lot less cheery when Amazon recently reported their 3Q22 results and downgraded their 4Q22 revenue guidance.

Similar sentiments were reflected across a large range of consumer names noting pricing pressure and a lack of holiday shopping visibility.  There is also clear evidence that inventories have been building across US retailers with supply chain constraints lifting and post covid "revenge spending" tapering off.

We maintain our preference for companies with strong pricing power, exposure to the more resilient high-end consumer and companies with global reach that can also benefit from a China reopening.

LVMH, MercadoLibre and Starbucks are three diverse consumer names that we believe can withstand a less cheery Festive Season.

Why Amazon's revenue downgrade is a concern

Amazon is a behemoth e-commerce platform with tentacles across most consumer channels and verticals.  They have access to extensive supporting data that can paint a clear picture of the general consumer outlook.

Historically we have seen Amazon downgrade earnings expectations, but this is the first time in many years that they've downgraded revenue expectations.  The fourth quarter outlook is specifically prevalent given that it includes big spending days in the US, such as Black Friday, Cyber Monday, and Christmas.  Amazon cited slowing consumer trends particularly in the US and Europe and a lack of holiday season visibility.

Whilst there were several consumer companies that reported relatively good 3Q22 results, outlook statements echoed Amazon's concerns and remained cautious around peak season sales and beyond.

Consumers are still nervous and hunting for bargains

Softer economic data points are now becoming more frequent following the flurry of central bank interest rate hikes year to date.  The US composite PMI slipped to just 44.6 in December, US housing continues to cool down, layoffs are surging, and consumer sentiment remains at levels last seen in 2009 despite a recent recovery.

US consumer spending has remained relatively resilient during 2022 as households continued to draw on excess savings accumulated during the pandemic. Post COVID pent up demand have been driving a revenge spending cycle focused on travel, leisure, occasion-based spending (for example weddings), beauty, entertainment and more.  Recent data points however suggest a softening in these trends with consumer wallets facing more constraints (softer macro/inflationary pressures).

According to Evercore ISI's December company surveys, current holiday sales remain focused on consumer staples products while discretionary category sales are slow, and consumers are focused on discounted goods.  More broadly pricing power continues to soften across industries from elevated levels as global growth slows.

Pricing power continues to soften across industries

Source:  Evercore ISI, December 2022

Signs of inventory build are intensifying  

Many companies across a range of sectors reported higher inventory levels during the 3Q22 results season. A result of continued supply chain disruption improvement and softer demand.  Target (US general merchandise discount store) and Nvidia (inventor of graphics processing units) were two examples of big bellwethers that guided to big inventory build, - adjustments, and/or write-offs.

Our detailed analysis of inventory levels for a sample of 30 global consumer stocks across retailing, food, and apparel, suggest a sobering level of inventory build across the consumer landscape.  We looked at the change in inventory as a % of sales and inventory days (average number of days a company holds its inventory before selling it) between the latest reported quarterly numbers (3Q22) and the same quarter last 2021 heading into the Festive Season (3Q21).

The results showed that there are only 3 stocks with lower inventory days and only 5 stocks with lower inventory as a % of sales in our sample.  There is specifically a clear inventory build in sportswear with Adidas, Puma, and Lululemon the worst offenders. For example, Adidas's inventory to sales is now almost 30% up from c17% at 3Q21 and Lululemon's inventory days are up from 126 days to 150 days (see chart below for the change in Inventory Days) over the same period.

Increased inventories a concern across many consumer names

Source:  Alphinity, Bloomberg, December 2022

Positioning in companies with strong inventory management and pricing power

Alphinity invests in quality companies that are in an earnings upgrade cycle that trade at a reasonable valuation.  In our view, excellent inventory management skills and strong pricing power will be critical in determining the winners vs losers in the 2023 consumer race.  Companies that can withstand margin pressures in an environment where business offload excess inventory and consumers hunt for bargains.

Investing in quality companies at the right time in their earnings cycles

Source:  Alphinity, December 2022.  Note: Alphinity currently owns LVMH, MELI & SBUX, but not AMZN & TGT.

Pricing power remains critical:  LVMH, the world's largest luxury group, is currently our biggest position in our Global Equity Fund as we head into 2023.  Demand for their luxury products have remained resilient despite slowing macro trends, with the company able to pass through inflation given their very price insensitive customer base.

LVMH has been in an impressive earnings upgrade cycle since 2020, delivering earnings growth across sub-segments, brands and increasingly across geographies.  Management also remains confident in a demand recovery in China once restrictions have lifted.

Despite the relative strong performance of the last 12 months, the company still trades at an undemanding 22x 12-month forward Price to Earnings, which is at the bottom of its 5-year trading range (20-35x)

LVMH - Strong pricing power & resilient demand drive an impressive earnings upgrade cycle

Source:  Alphinity, Bloomberg, December 2022

The US consumer is not the global consumer.  Certain emerging market countries, such as Brazil, are ahead in the business cycle vs major developed markets, where inflation, interest rates and unemployment are already past peak levels.

MercadoLibre (MELI), is the largest e-commerce and fintech company in Latin America, with over 88 million subscribers and exposure across 15 countries.  MELI has a unique eco-system model with their marketplace, payments, credit, logistics and other services all reinforcing each other, driving strong top line growth.

MELI's reported very strong 3Q22 results well above their peer group, with accelerating sales growth and margin expansion reflective of their core strengths, including their broad category base, continued logistics improvements and a step change in marketing.  Management noted they continue to "manage for growth and market share leadership"

MELI consistently delivering strong Revenue growth and Operating margin expansion

Source:  Bloomberg, December 2022

China reopening will be an important earnings driver of 2023 earnings for multi-national companies: Starbucks (SBUX), is the leading specialty coffee retailer in the world, operating across more than 80 markets through company-operated and franchised stores. SBUX experienced a tough time during COVID, with many store closures resulting in a big drop off in sales and margins across all markets.

Looking ahead, we expect their new strategy to drive a strong recovering in same store sales growth across their international markets and a return to profitability.  SBUX is also well positioned to benefit from a China reopening, where they continued to open new stores during the pandemic (going from 4123 stores at the end of 2019 to 6000), that can return to profitability.

China Same Store Sales Growth - Potential to rebound on reopening

Source:  Bloomberg, December 2022

We will only know during the first quarter of 2023 if Amazon did indeed cancel Christmas and if general market jitters were justified.  Regardless, good inventory management, strong pricing power and the right geographical exposures will remain critical elements for consumer companies as they navigate yet another tough macro year ahead.

At Alphinity we will continue to do bottom-up analysis and global company visits to find the highest quality companies that have these attributes and can deliver higher than expected earnings.

Author: Elfreda Jonker (Client Portfolio Manager)

This information is for advisers & wholesale investors only.

A 'just transition' refers to the way the world transitions to low-carbon energy sources. It is a crucial part of the climate agenda. A just transition aims to minimise adverse impacts from the energy transition and to see everyone share its benefits - including workers, suppliers, communities and consumers.

The journey to net zero will have uneven effects across industries and countries. One key aim of a just transition is to support vulnerable workers by creating green, high-quality jobs and helping equip workers with the skills necessary for achieving net zero.

Net job impacts

The prevailing view is that the transition to a net-zero economy would lead to more job gains than job losses. According to McKinsey's calculation based on a net-zero 2050 scenario, the transition could create around 200 million jobs and displace around 185 million jobs. This could result in a net impact of around 15 million more jobs by 2050.¹ These job gains include around 162 million jobs in operations and maintenance across different sectors of the economy, and around 41 million jobs associated with spending on physical assets needed for the net-zero transition by 2050. The International Labour Organisation (ILO) paints an even more positive picture, estimating that a net increase of 18 million jobs by 2030 is possible.²

What sectors and countries will be most affected?

According to the ILO, most of the job creation that results from the energy transition will happen in construction, electrical machinery manufacturing, copper mining, renewable energy production, and biomass crop cultivation. Most of the job losses will occur in petroleum extraction and refinery, coal mining, and thermal coal. In addition, the shift to electric vehicles will require fewer workers for production, leading to net job losses - something that is already happening within the sector.

The impact on jobs also varies by country, depending on its economic exposure to the net-zero transition. The transition would unevenly affect lower-income and fossil-fuel-producing countries, such as Pakistan, India, Bangladesh, Kenya, Nigeria and Indonesia.

How companies manage the impacts of the transition on their workforce will pose considerable investment risks and opportunities for investors

These tend to be countries with a relatively higher proportion of jobs, gross domestic product and capital stock in sectors that are more exposed to the transition - that is, sectors with emission-intensive operations, products and supply chains. Significant fossil-fuel resource production also creates high exposure for some countries, such as Qatar, Russia and Saudi Arabia.

Investment implications

How companies manage the impacts of the transition on their workforce will pose considerable investment risks and opportunities for investors. There are two types of risks facing companies within the sectors that are most exposed to the energy transition: restructuring risks and human-capital risks.

Firstly, when it comes to restructuring risks, the most obvious of these is operational disruption caused by mass redundancies. This can lead to costly pay-outs and challenging labour relations. Research shows that the top performers with higher restructuring management practices tend to be concentrated in Europe. This is also the case for companies within the fossil-fuel and emission-intensive sectors, which indicates that European companies are relatively more prepared for a just transition.

Secondly, human-capital risks mainly manifest as skills mismatches and shortages, which can impede a company's progress on the green transition. According to the International Energy Agency (IEA), the energy sector already faces difficulty hiring qualified talent to keep pace with the growth in clean energy. If solar and wind installations reach four times today's annual level by 2030, as called for in the IEA's net-zero scenario, these labour constraints could impede the world's ability to accelerate the shift to a low-carbon future.³

According to the ILO's survey, while most countries have environmental policies, there are only a handful of countries with corresponding policies at either the national or the regional level for skills development. These are Denmark, Estonia, France, Germany, the UK, the US, China, India, South Korea, the Philippines and South Africa. Similarly, few countries have incorporated skills for the green transition into the formal vocational training curriculum.⁴

Companies also have an important role to play in identifying and anticipating skills, and in providing access to jobs and training for the green transition. In practice, this can be done in partnership with the government and educational organisations.

Investors need to understand how these risks are being managed. For example, through our own extensive engagement with auto makers, we have learned that the industry is managing these risks through early retirement schemes, upskilling of the existing workforce, and proactive engagement with trade unions. In general, to understand how companies are managing these risks, investors can focus on four key indicators:

• evidence that the just transition is integrated into the company's climate transition plan;
• adoption of responsible restructuring practices;
• provision of relevant upskilling and vocational training; and
• efforts to create high-quality, green jobs.

Conclusion

The energy transition will have a significant impact on employment. It will lead to the creation and displacement of millions of jobs. While the overall net impact is likely to be positive, the projected job gains will concentrate in sectors like renewable energy, electrical machinery and construction. From a geographical perspective, a higher level of disruption to the labour market is expected in developing countries that rely heavily on fossil-fuel and emission-intensive sectors. How companies and governments manage these impacts will present risks and opportunities for investors.

Our ongoing research and engagement aim to understand the social impacts and potential risks to our investments from the energy transition. Our research in this area is expected to expand and grow in the future, in conjunction with our ongoing climate change, human rights, and labour and employment work. For example, building on our focus on workers in the energy transition, we will also consider the perspectives of communities and consumers, in order to integrate further insights into our investment process.

Author: Ziggy You, Sustainability Analyst and Elizabeth Chiwashenga, Senior Sustainability Analyst

By now, people whose eyes don't immediately glaze over once discussions of personal or national budget are broached are well aware of an upcoming spike in their electricity and gas bills. However, for the majority of the Australian citizenry the 'sticker shock' from the increase in utility bills will still be felt in real time. Tim Toohey, Head of Macro and Strategy, details why for many Australians this will merely compound an already dire cashflow situation.

For context, the Australian Treasury has assumed that electricity prices will rise 20% (y/y) by late 2022 and a further 30% in 2022-23. This will take utilities to an unprecedented share of wallet in 2023, some 2.6% of household income by Dec 2023 (refer Chart 1). While that may not sound like a particularly scary figure, it's 25% above the 10-year average and 49% above the long run average dating back to 1960. It will also represent the biggest one year rise in utility bills in the post-War period.

The cause for the spike has been well documented. A surge in global coal and energy prices in reflex to the invasion of the Ukraine was the dominate force, some unfortunate timing of coal-fired power station maintenance and some less than transparent behaviour by market participants all played a role. Yet the cause of the trend rise in utility costs is less well understood at the household level; the rapid transition to renewables is unravelling the economics of running coal and gas-fired generation at an even more rapid rate.

This is not to say that decarbonising the grid in an expeditious manner is not necessary or desirable. It merely means that the cost of the transition will be felt well beyond well-heeled investors asked to dig deep into their pockets to finance the capital cost of the transition. Indeed, it is the consumer that will invariably be forced to pay for the potholes in the road to decarbonisation as firms seek to recover the cashflow hit from declining economics of traditional generation via higher power bills.

Utility companies know this. Politicians should know this. Households largely have no idea that they are ultimately on the hook if best intentions of a smooth energy transition turn to custard somewhere along the journey.

To overwork the analogy, we have barely gotten the car out of the driveway with a long journey ahead to a known destination but without a clear map of how to get there. We don't have enough cash in our wallet to complete the journey, some of the roads have not yet been built, and the kids who have been fighting politically for years before getting in the car are continuing to do battle in the backseat.

For those of us scarred from family car trip holidays at this time of year, we are collectively at the point where optimism and excitement at the start of a trip are about to be overwhelmed by the reality of a long-haul car trip in the Australian heat. The feeling of sizzling hot car seats, the taste of Aerogard inadvertently sprayed into a protesting mouth and the injustice as youthful back seat rebellion is brutally supressed by the front seat elites.

Yes, it's going to be a long and painful journey. But to get a sense of who will bear more of the cost, we can look at the average quarterly electricity bill across different dimensions.
Geographically, households in WA on average have lower power bills and for any 50% national price increase will be roughly $240 p.a. better off than their SA cousins (refer Table 1).

By household size (refer Table 2), the more children you have the greater the power bill increase (and the more time the parent spends wandering around the house turning off lights left on by their children).

By age, it's the young that will feel the pain more acutely (refer Table 3). Indeed, Gen Z (18-24yo) power bills will swamp the bills of Baby boomers (60+) by $150 p.a. Yes, despite the moral superiority of youth, it seems it takes more power to fuel video gaming sessions in the wee hours and to charge the armoury of devices required to keep your social media presence tip top!

From the perspective of a top-down economist, the addition increment to inflation from rising power and gas bills could add 1.75% to inflation by the end of 2023 in first round impacts and potentially a further 0.35% in second round effects (Refer Table 4). That's a lot, but that's an average estimate. From the perspective of young households with multiple children living in the Eastern States, the impact will be larger and more painful.

Worst still, this is the slice of the population that are most at risk of rising education, health, insurance and housing costs. We all know that the interest payments on the stock of existing total household debt are set to rise incredibly sharply in 2023, compounded by the roll off of fixed rate mortgages (refer Chart 2).

In conjunction with principal payments, debt servicing for the average household is set to breach the prior record during 2023 (refer Chart 3). Again, this is for the average household. The situation for young mortgaged households is far more dire, not to mention a rising proportion of the recent new homeowners who are now entering negative equity scenarios for their homes.

This will place an enormous impost on a large section of society. Nobody likes having their discretionary income squeezed and nobody likes an unexpected spike in their gearing ratio via falling asset prices. Even if we assume the ongoing robust growth in wages and employment in 2023 the impost of higher interest costs, utility costs, insurance costs and rents will be sufficient to see average discretionary cashflow fall by 15% by mid-2023 (refer Chart 4), and much more for young households with large families and large mortgages.

Given, retail sales growth normally closely tracks our measure of discretionary cashflow, we expect that retail sales will slow from the rapid rate of close to 20%(y/y) to zero growth by mid-2023. Note, this is likely the best-case scenario. It could easily be worse if sub-trend economic growth reveals labour market weakness with a lag, as observable in all prior downturns.

The argument that Australians have accumulated 'buffers' via $260bn in 'excess savings' since the pandemic and via pre-payments on mortgages will exceed additional interest payments - for most borrowers at least - is illusionary.

While this might be true in an accounting sense, the RBA is likely asking itself the wrong question. It is not a question of how big a 'buffer' is before tightening policy will hurt, it is why did households accumulate such a buffer in the first place? And is the economic outlook improving or deteriorating?

Excess fiscal stimulus obviously contributed to the initial saving spike, but what if the ongoing accumulation of savings was more about de-risking asset exposure in an uncertain time or because a large cohort of the population is simultaneously entering retirement (COVID may have expedited this decision for many Baby Boomers).

If this is the case, then the 'excess saving' is not suggestive that a consumption boom lies ahead that threatens future inflation. Quite the opposite: in times of rising economic uncertainty households tend to initially lift their saving rate. They do not decrease it.

There has been ongoing debate whether the government has a role to play in capping utility costs. And, if so, whether that should be at the company level or the consumer level. Given the recent history of firms profiteering through the crisis by lifting prices rather than absorbing margin pressure and the impending cashflow hit for households, the answer should be obvious.

More importantly, if the government wants to keep everyone in the car playing nicely during the initial phase of the energy transition, then the answer is very much yes: utility costs need to be controlled. Let's just hope that there are enough fiscal resources and goodwill to get us to that new energy destination as quickly and efficiently as possible.

Author: Tim Toohey, Head of Macro and Strategy

December's chart are largely lifted from an Equitable Investors slide deck. We can't really avoid taking a look at inflation and interest rates - so that is where we start with charts from Bloomberg showing the expectation for a sharp inflation correction in the US in 2023 (and a view on why based on Academy Securities' view of inflation drivers). Central bank policy rates remain, in the main, below inflation rates, as @charliebilello tabulates. CY2022 is almost gone and we can look back at capital markets and see sharp declines in the availability of funding - global equity capital raising volumes down 65% and Australasian down 54% year-on-year, using dealogic data. High yield debt issuance plunged even further. Crunchbase reckons that in global venture capital markets, seed funding dropped by a third, early stage halved and late stage is down by 80% compared to November 2021. Finally, Cliffwater shows us how private equity has outperformed since 2000 (in a period that coincides with historically low interest rates) and Refinitiv's Venture Capital Index gives us an idea of how alternative assets may have faired in 2022 if they were priced daily.

Implied inflation (starts Dec 9)

Source: Bloomberg

Inflation Drivers (estimated)

Source: Bloomberg, Academy Securities

Global Central Bank Policy Rates (as of Dec 8, 2022)

Source: Compound/@charliebilello

Global Equity Capital Market Volumes ($USb)

S

Source: WSJ, Dealogic

Australian Equity Capital Market Volumes ($USb)

Source: WSJ, Dealogic

High Yield Debt Capital Markets

Source: WSJ, Dealogic

Global Venture Capital Funding

Source: Crunchbase

Composite Private Equity Performance (US State Pensions)

Source: Cliffwater

Refinitiv Venture Capital Index Over 5 Years

Source: FT

December Edition

A year ago, we communicated that inflation and geopolitical risks would dominate 2022. Early in 2022, we predicted the recession would strike within 18 to 24 months. We now expect that the outlook for 2023 will be dominated by the following economic drivers: US and global recession, volatile inflation outcomes, and continuing geopolitical risks. This provides tremendous challenges to traditional equity and property-centric portfolios and great opportunities for unconstrained active management. Let us explore three ways we expect to benefit from this outlook to position and profit in 2023.

(1) Precious Metals and Other Commodities
Inflation has peaked for now. Demand is in decline, and recession is looming, with cooling inflation due to weakening economic growth and the delayed effects of a rapid monetary policy tightening cycle. Inflation is not a spent force, however, and increasing inflation will likely return post-recession due to policy and geopolitical settings. At the same time, given the large structural challenges, including huge debts and fiscal deficits, central banks are unlikely to continue with sufficient tightening for long enough to prevent inflation's eventual return. Mismanagement of energy and commodity policy, low workforce participation and China's reopening will likely see higher inflation, energy and commodity prices than has been the case in many prior recessions.

Geopolitical risks remain extreme, and war is a highly profitable business for some instrumental people and entities, with the Pentagon again being unable to pass an audit.

The war in Ukraine is at risk of escalation and is no closer to being resolved. The Middle East remains a risk, and China and Taiwan remain unresolved. Politically the world appears to be fracturing both regionally and ideologically, and many important countries are now openly flouting US hegemony and working on deepening and developing their own trading and financial relationships.

Precious metals was our favoured asset class for 2022 (and one of its top performers) and remains a must to own given the political and economic environment. Gold could easily reach new highs in 2023, offering diversification and some reasonable prospect of substantial gains. As part of a diversified portfolio, we also perceive opportunities in oil, uranium, speciality metals and food.

(2) Active Management, Hedging and Shorting
At the asset class and stock level we perceive numerous opportunities to preserve and add value in 2023. Equity markets are likely to be weak into an earnings recession in the first half of 2023 as decreasing earnings are not priced in and may hence provide opportunities for increased weightings as realism returns. Dynamic asset allocation enables meaningful asset class movements, such as taking advantage of the current rally to sell or hedge equities, hence owning low equity weightings today while being ready to buy equities or high-yield credit when they offer a sufficient risk premium and a better outlook.

Even bonds may provide opportunities. Convertible bonds currently appear attractive as equity substitutes and offer better downside protection. Government bonds with duration have two-sided risks albeit they may still suffer under structural inflation, capital withdrawals or central banks unexpectedly holding their nerve and keeping policy tight for longer. Nonetheless, they will likely provide tactical opportunities to own small weightings.

Liquid alternatives and trading strategies appear attractive for their low market sensitivity and their ability to protect capital. These include long/short approaches, relative value opportunities, contrarian trading, carbon trading and event-driven strategies. These strategies don't rely upon favourable equity markets to do well and provide a cash alternative, offering better capital preservation in weak markets. It is not necessary to lock up money for 7-10 years in illiquid alternatives to get the benefits of diversification, as liquid strategies provide attractive opportunities while so many stocks remain overvalued..

Investors in large commercial property managers like Blackstone are finding out that favourable published returns are not available to them when they want to redeem. Investors in some large Australian super funds could also potentially suffer similar issues, particularly if economic and financial market conditions further deteriorate.

Stock picking will likely offer good opportunities into 2023, both long and short and even among some very large market leaders. Tesla looks to be the gift that keeps on giving on the short side, with the reality of strong competition, insider sales and lower growth in a recession bringing the company's valuation back down to earth. (We have successfully shorted Tesla more than once in 2022 and will likely do so again). Numerous still highly priced growth stocks are likely to disappoint further and will provide good hedging opportunities during market weakness in the early part of 2023. Companies like Zoom still fall into this category. Numerous "high promise" but currently unprofitable companies have had a disastrous 2022 whilst diluting shareholder equity by issuing large share and option incentives to management. Many large quality companies and household names where investors are hiding also appear overvalued; companies like McDonalds and Coca-Cola are trading at greater than 30 times earnings with modest growth and consumer sensitivity. Blackrock provides an opportunity to short passive management. Many commercial property stocks will likely be strong shorting opportunities, given the sector's disastrous outlook.

Later in 2023, there may be significant opportunities on the long side in small caps and selective growth companies to play a recovery. On the long side, selective resource stocks still offer good longer-term opportunities, but many managers need to be avoided in the space due to demonstrably poor risk management and track records. If 2022 has proven anything at all about many money managers, it is that too many are like passive funds and rely upon rising markets, offering little risk management or capital preservation on the downside. Poor downside risk management can reveal who to avoid and switch away from!

(3) Genuine Diversification and Differentiation
Uncorrelated assets and strategies combined provide superior risk-adjusted returns to any one of the underlying components. Investing in multiple assets across various strategies provides greater downside protection. A diversified portfolio provides the owner with the knowledge that their risk is substantially lowered in a precarious and uncertain world compared to betting on any one outcome such as in equity or property risk alone. No matter how experienced you are, you never know anything for sure in this crazy world full of bad actors, and hence it is prudent to be protected from concentrated risks.

We expect that markets will remain challenged in early 2023 as economic mismanagement, increased corruption and malfeasance, geopolitical, valuation, and volatile inflation and interest rate pressures continue haunting broad market outlooks. This will again prove highly challenging for passive management, which must wear all these factors to its detriment. Genuine active management, fundamental research, risk management and conservatism appear essential in this environment.

We still see the end of a previously favourable period of globalisation and peaceful prosperity. Wages pressure, demographic issues and greater protectionism, regionalism, autocracy and greater socialism, along with less workforce participation, mean the labour and capital balance is shifting. Higher structural inflation and volatile inflation outcomes in coming years, along with various tail risks, must be carefully considered when building a portfolio and mean that the portfolio of the 2020s should be fundamentally different from years past. It is essential to be more conservative and have better diversification in this environment rather than simply gambling on strong financial asset returns, as the latter approach is best suited to a period that has now gone. 2022 has shown that many bottom-up investors who ignored these crucial top-down factors have been severely punished, for example, by holding large allocations to growth stocks or investing in what were traditionally defensive investments such as government bonds.