BY PAOLO MARONGIU
December was generally a positive month for global stock markets (MSCI World P.R.: +1.26%; S&P500 P.R.: +0.98%; MSCI Emerging Markets P.R.: +3.36%), with the exception of the Euro-Area, where all the main regional markets registered negative returns. The sell-off recorded in the European equity markets was mainly attributable to a decline in the utility sector (-3.89% P.R.), where the maximum MoM drawdown of -1.85% was recorded by the Euro Stoxx 50.
Until 21 December the performance of the Index was in line with the Pan-European Index (MXEU), however a strong sell off followed in the Eurozone markets, widening the gap between the Euro Stoxx 50 and the MXEU to -2.53%.
The European equity market ended the year in positive territory, with the MXEU showing a solid price return of 7.28% for 2017, trading close its yearly high posted in May (around 134 ).
The Euro is still strong, reaching the 1.20 level against the Dollar at the end of December, increasing the pressure on the Dollar. At the same time, the Dollar Index fell to circa 92.
During the year, the American stock market was much stronger than the European stock market and posted new historical highs in local currency. The relative strength of the S&P500 Index was remarkable, with the market getting close to the 2700 area, indicating once again that global markets outperformed European markets.
In December, the Strategic Beta Flex Fund returned +0.26%, in line with a portfolio with a similar net exposure in equities: the long leg of the portfolio has been able to generate a good amount of alpha, both in December as well as over the medium term, outperforming its peer group since the summer.
In the short term, the Investment Adviser will maintain a cautious stance towards equity markets, waiting for good entry points in order to raise the portfolio’s net long exposure. The team’s medium term view remains positive, with global growth still appearing solid and well synchronised across the globe from a macro point of view.
The team perceives the challenge in the short term to be overvaluations, conditions fostering excessive overbuying and the equity risk premium being quite low.
The views and statements contained herein are those of Sofia SGR in their capacity as Investment Adviser to the Fund as of 18/01/18 and are based on internal research and modelling.