Equity markets continue to rebound

The Strategic Europe Quality Fund returned 1.5% in May. The consumer discretionary sector was the largest detractor, primarily due to Compass Group.

Monthly Fund Commentary
23 Jun 2020

The Strategic Europe Quality Fund returned 1.5% in May. The consumer discretionary sector was the largest detractor, primarily due to Compass Group.

The Fund’s relative overweight to the consumer staples sector and cash allocation also detracted from alpha. This said, the Fund’s relative underweight to the financials sector was a noteworthy contributor.

The best performing sectors for the benchmark over the period were industrials, information technology, materials, utilities and consumer discretionary; while the worst performing sectors were energy, financials and consumer staples.

The Strategic Global Quality Fund returned 2.7% in May. The main detractor was the Fund’s relative overweight to the consumer staples sector.

Stock selection for the consumer discretionary sector was also a detractor, again attributable to the Fund’s exposure to the Compass Group.

Consistent with the Europe Fund, the Fund’s significant underweight to the financials sector was a positive contributor to alpha. The best performing sectors for the benchmark over the month were information technology, materials and industrials; while real estate, energy and consumer staples were the worst performing sectors.

There were no significant contributors to alpha over the period for either Fund, with the Compass Group being the only noteworthy detractor for the Funds.

Market Outlook

The equity market rebound continued throughout May. Cyclical sectors in Europe are performing well, and the anticipation of an EU wide recovery plan has also benefitted the market.

Central bank action and governments have helped to cushion the impact of COVID-19, but the true economic impact remains unclear. The Investment Adviser added some cyclicality to the portfolios during April and May by adding one or two names that will benefit from a recovery.

This said, the Team believe that it is better to remain cautious as there are many macro and political issues that could cause concern.

The views and statements contained herein are those of Lofoten Asset Management in their capacity as Investment Adviser to the funds as of 18/06/2020 and are based on internal research and modelling.