BY WILLEM VINKE
April provided the first insight into corporate profitability, the results were mixed with developed markets generally traded up to sideways. The US indices rose to new highs, even though US earnings expectations were steadily downgraded. In Europe, most markets traded sideways as investors waited for signs of growth, the exception was Germany, where there was profit taking.
Emerging markets, China, Brazil and Russia, rallied as the US dollar weakened and oil which bottomed in March continued its rise, WTI closed just below USD60. Two months into the ECB’s QE, the 10 year Bund tested a negative yield before rising 0.36% as sentiment changed and inflation became a concern. US rates remained unchanged with the US 10 year treasury trading below a 2% yield and Gold remained benign around USD 1,200, with no increase to geopolitical tensions.
During April the Fund outperformed the MSCI Europe Total Return by 74 basis points as the benchmark recorded a flat performance (+0.01%). The Fund’s outperformance was derived entirely from the Investment adviser’s stock selection (+2.01%), while sector allocation proved to be a drag (-1.00%). With rising oil prices, the energy sector was the best performing sector during the month; however due to the capital intensive nature of these companies, the Fund structurally has no exposure to the sector. Strong stock selection within the consumer discretionary sector provided just under half of the month’s outperformance. The notable performers in the period were Pandora (+8.9%), a position held for many years and Grandvision (+ 5.3%), an IPO from the 1Q. Elsewhere, good selection within consumer staples, financials and Information technology also drove the Fund’s performance. Other standout performances during the month included Fagron (+8.6%) and Autotrader (+7.3%). Stocks which dragged on performance included Qiagen, Beiersdorf, and Wolters Kluwer; the latter of which had previously recorded a strong rise in the first quarter. Due to valuation, the Investment Adviser switched Anheuser-Busch Inbev for Heineken.
In the coming months the divergence between economic growth and market valuations between Europe and the US will be closely watched with investors questioning if (a) lack of US growth could impact Europe and (b) whether the ECB’s QE is really reaching the corporate sector.
The views and statements contained herein are those of Lofoten Asset Management in their capacity as Investment Adviser to the Fund as of 07/05/15 and are based on internal research and modelling.