Major US indices ended the week higher. Companies in the growth phase performed better compared to the so-called "value stocks", thanks to the support of companies in the consumer goods sector with a cyclical nature. Easing pressure on raw materials and improving supply chains can lead to more optimistic sentiment in the markets. Excessively strong "bearish" sentiment can easily switch to neutral or even slightly positive if lower fuel prices give an indication of better corporate earnings or even just an improvement in company costs.
Against the background of inflation, slowing economic growth, China's lockdown due to Covid-19 and the geopolitical crisis in Eastern Europe, international equities and emerging markets also managed to record a positive week.
Bonds
Bonds also performed well. The rise in the Bloomberg Aggregate Bond Index was largely driven by the decline in 10-year bonds yield. It declined and reached levels around 2.80%, well below 3%. Bond investors are taking note of slower economic growth and believe in cooling inflation. Corporate bonds also rose, supported by the strong performance of stocks.
Raw materials
The price of natural gas rose sharply for the third week in a row. One reason is supply challenges in Europe, as future Russian supplies appear to be in question. The base metals gold, silver and copper finished mixed this week.
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Risks:
Despite all the benefits, the investment in shares of mutual funds brings certain risks like:
1) Market risk with the following components: a) interest risk related to a decrease of the value of the investment due to a change of the interest rates levels b) currency risk related to a decrease of the value of the investment, denominated in a currency which is different from BGN and EUR c) price risk related to a decrease of the value of the investment in the case of unfavorable changes of the market’s prices;
2) Credit risk – related to a decrease of the value of the position in the case of unexpected events with a credit nature which are related to the issuers of financial instruments, the counter side of exchange and OTC transactions, as well as countries, in which they operate;
3) Operational risk – from errors or flaws in the system of the organization
4) Liquidity risk – in case of forced sales of assets under unfavorable market conditions;
5) Concentration risk – in case of incorrect diversification of exposures to groups of related clients, from the same economic branch, geographic area, etc.
6) Position risk which is related to the change of price of a certain instrument in result of factors related to the issuer or in case of a derivative instrument – related to the issuer of the base instrument;
Additional information for the risks can be found in the Prospectus of the respective fund, which is available here: www.compass-invest.eu