By WILLEM VINKE
Positive noises from the central banks and the beginnings of political stability in the UK as Theresa May became the new prime minister saw the MSCI Europe rebound in July following its June sell-off. It closed up 3.51% for the month.
The Auto and IT sectors led the way on the back of company results while the banking sector, especially the Italian banks, came under pressure. The bond markets were mixed. German and US 10year yields traded sideways to close at -12bps and 1.45% respectively while Spanish, French and Italian yields fell 17bps, 9bps and 10bps to close at 1.02%, 10bps and 1.17%, respectively. Sterling traded sideways against both the Dollar and Euro on the month, finishing at $1.32 and €1.18. Brent traded down 14.5% during the period, closing at $42.46. Gold ended the period at $1351.
As one would expect, the Fund under-performed its benchmark index in July. The institutional class returned 1.63% versus 3.51% for the index. At the stock level the biggest contributors to performance were SAP, CTS Eventim and Sage. SCA, Reynolds and ABI were the biggest laggards. During the period positions in ABI and Bayer were closed while positions in National Grid and Fresenius Medical Care were established.
The Investment Adviser has become increasingly concerned about the global outlook throughout the first half as the underlying data has worsened. Earnings growth exfinancials is going backwards in both Europe and the US. In Europe expectations for further growth are the lowest they have been for some time and in the US profits as a percentage of GDP look to have peaked. Furthermore there are plenty of opportunities for the political backdrop to deteriorate following the UK vote to leave the EU and with upcoming elections and referendums across Europe and the US. It is unclear how much more the central banks can do. In such times the Fund continues to focus on well run, high quality companies that have greater visibility.
The views and statements contained herein are those of Lofoten Asset Management in their capacity as Investment Adviser to the Fund as of 8/08/16 and are based on internal research and modelling.