Central banks managed to stabilise the markets in March


Fund Commentary
18 Apr 2016


A rebound in the oil price, a more accommodative tone from the Fed, better than  expected statistics in the US and historical BCE actions led March to become the first  month in 2016 with a positive return (+1.40% for the Fund’s benchmark) but also the  first positive month after a 13.0% retracement over the December 2015 – February 2016  period. Despite a sizable rebound since mid-February (+12%), the Fund’s benchmark is  still down 8.12% year to date at the end of the quarter. 

In that context, the  Fund also managed to  post a strong rebound  with a +4.78% return in  March, outperforming its  benchmark by 3.38%. For  the first quarter, the Fund’s  performance was -2.93%,  a 5.19% outperformance  versus its index.

  26 investments positively  contributed to performance  in March, and 4 were in  negative territory. For the  second month in a row, SLM  Solutions was the most significant contributor, followed, this month, by Brembo and  Kendrion. At the other end of the spectrum, Fermentalg, Aubay and Cancom were the  three main detractors.

Despite the 8.12% decline in the European markets in the first quarter, 17 of the Fund’s  31 investments during the period managed to report a positive return. The 3 main  contributors were: Aubay, SLM Solutions and Komax while the 3 main detractors were:  Mersen, Fermentalg and Saf-Holland.

Revisions to consensus 12-month forward EPS estimates have been sharply negative  again this year to date: down by over 7% for the SXXP. The consensus now expects 1%  EPS growth compared with 8% at the outset of the year. Much of this decrease is heavily  weighted to the Oil and Basic Resources sectors. Banks too have contributed a large  share of the downgrades. But this is far from the entire story. Of the 19 STOXX sectors,  17 have seen downgrades. The market has arguably been pricing in a turn in earnings  in Europe which continues to fail to materialize, and is one of the reasons for the recent  correction in the markets. In the Investment Adviser’s opinion, European equities could  remain flattish and volatile in 2016 but with much dispersion within the index in terms  of sectors and themes, which the Investment Adviser shall try to exploit, as was the case  in March.

The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 11/04/16 and are based on internal research and modelling.