Here we go again?

Market Development: In November, the MSCI World Index (total returns in USD) declined by 2.19%, the EURO STOXX 50 (net returns in EUR) returned -2.41% and the S&P 500 (total return) decreased by 0.83%. The Dollar Index (DXY Index) strengthened by 1.99% over the period, whilst the generic 30Yr Treasury yield decreased from 1.94% to 1.80% and the VIX increased from 16.26 to 27.19.

Commentaire du Fonds
17 Déc 2021

Market Development: In November, the MSCI World Index (total returns in USD) declined by 2.19%, the EURO STOXX 50 (net returns in EUR) returned -2.41% and the S&P 500 (total return) decreased by 0.83%. The Dollar Index (DXY Index) strengthened by 1.99% over the period, whilst the generic 30Yr Treasury yield decreased from 1.94% to 1.80% and the VIX increased from 16.26 to 27.19.

The month ended with a twist as another new COVID variant emerged, believed to be the origin of a spike of cases in South Africa. With ongoing uncertainty surrounding the implications of various mutations, Moderna CEO Stephane Bancel’s pessimistic assessment of existing vaccine efficacy towards Omicron sparked a risk-off move in equity markets.

FED Chairman Jerome Powell exacerbated the volatility by publicly acknowledging that some components of inflation were probably less transitory than initially perceived, and this supported a discussion around accelerating the so-called “tapering” of its bond-buying program.

Notorious for dealing efficiently with known risks, but sensitive to uncertainties, the markets dropped as risk-aversion roared back and the VIX Index shot up to 35, a level last seen in January. While questions linger on Omicron and its global economy disruption potential, markets are slowly regaining their footing as we speak, yet with significant rotations within its components.

Therefore, the debate and struggle between what is the right monetary policy to adopt given the above-mentioned developments, and the uncertainty that would be triggered by a hawkish turn, pushes us to adopt a cautious stance in preparation for future Central bank announcements. Whilst we feel that Jerome Powell’s seeming shift in stance is not a game-changer, his acknowledgement that some recent developments do support a case for a higher base rate of inflation will likely impact markets going forward across asset classes.

Market Outlook

Equity markets are particularly sensitive to the financial conditions provided by Central banks, the outlook for earnings growth and general uncertainty. It seems to us that after two years of ongoing hardship to fully transition to a “post-COVID” world, strong results posted by listed companies and clear supportive messages from central bankers have been the building blocks on which investors have demonstrated their serenity.

However, as the world continues to struggle with COVID; its unknown array of variants; other knock-on effects such as inflation; and questions around extreme monetary policies’ sustainability; some forces pressuring the equity asset class higher as a whole are likely to partially dissipate, requiring a more granular, stock-specific approach.

All in all, we remain constructive on specific opportunities within our universe, particularly in view of its relative value towards other investment opportunities or asset classes, but we will remain vigilant. After all, if these well-known questions (or others), were to weigh more heavily on the market, entry points for long-term investment opportunities could arise, which is why we are maintaining a more balanced allocation today, and significant dry powder.

Portfolio Development

The Sturdza Family Fund‘s largest positive contributors during November were Dollar Tree (+0.24%), Apple (+0.16%) and Constellation Brands (+0.05%); whilst the largest detractors were Alibaba (-0.24%), Global Payments (-0.23%) and Activision Blizzard (-0.23%).

From a sector standpoint, Materials, alongside Consumer Discretionary and Utilities were the smallest detractors over the period. On the other hand, the largest detractors were Healthcare and Communication Services, followed by Information Technology.

Whilst the Payment sector has been under pressure in recent months, in part due to delays in normalising cross-border transactions and fear of increased competition, we remain convinced of the significant value these companies offer at current prices.

To ensure an adequate overall risk profile, we exited our position in American Express, a significant winner held almost since Fund launch, and reallocated some of the proceeds towards our other payment companies. We also significantly reduced our position in Merck, following a large upwards price movement sparked by its antiviral drug which pushed the price beyond our valuation comfort.

As always, we invite investors and prospective investors, to contact us should they wish to understand our views on the current situation and the positions held in the portfolio. Please do not hesitate to contact us for further information.

Adam TurbervilleAdam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com


The views and statements contained herein are those of Banque Eric Sturdza SA in their capacity as Investment Advisers to the Fund as of 16/12/2021 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.