A year-end rally in Europe remains possible

By Willem Vinke

Fund Commentary
31 Dec 2014

By Willem Vinke

Weak Eurozone Purchasing Managers survey results in November, coupled with disappointing economic data from China, led to mounting expectations that the European Central Bank would launch a quantitative easing programme.

In addition there was a surprise cut in key rates by the bank of China as bad news became good news and as a result the MSCI Europe Index trended up throughout the month.

Similarly the bond markets traded in line with the German 10 year government yield falling 14bps to 70bps, and the UK 33bps to 1.92%. The Japanese Index gained over 7% as Shinzo Abe called snap elections for December in order to seek a renewal of his mandate for economic reform, as the economy once again fell into recession.

There was a surprise cut in key rates by the bank of China as bad news became good news.

Brent crude fell from $84.80 down to $68.99 in the month, with the OPEC (Organisation of Petroleum Exporting Countries) meeting in late November confirming fears that supply would not be curbed; the oil price was down 6.5% on that day alone.

The Fund outperformed its benchmark index in November by 1.62%, benefitting from its USD exposure and its underweight position in the energy sector. At the stock level, the main contributors to performance were Wirecard, Wolters Kluwer and Beiersdorf. The Fund added positions in AA plc, CTS Eventim, Swatch, Swedish Match and Unilever. The position in AstraZeneca was sold and the holding in Sky Deutschland was absorbed in the takeover of the company. As traded volumes drop and expectations of further easing in Europe increase, a year-end rally remains possible. However, with geopolitical uncertainties ever present and indices still near all-time highs, the Investment Adviser’s focus will remain on fundamental value.

Commentary provided by Lofoten Asset Management in their capacity as Investment Adviser to the Fund as of 11 December 2014