Environment continues to evolve rapidly

Market Development: The global equity markets bounced nicely during October, with the MSCI World Index rising by 7.2%. This should not be unexpected given the sharp selloff seen in the previous weeks, which led to a sharply oversold market from a technical perspective. The sentiment was also consensually negative, and normally, the markets then do what one least expects.

Fund Commentary
28 Nov 2022

Market Development: The global equity markets bounced nicely during October, with the MSCI World Index rising by 7.2%. This should not be unexpected given the sharp selloff seen in the previous weeks, which led to a sharply oversold market from a technical perspective. The sentiment was also consensually negative, and normally, the markets then do what one least expects.

This is classical bear market behaviour given the backdrop of increasing interest rates, high energy prices, slowing economic growth and the Ukrainian / Russian conflict that has not been resolved.

Market Outlook

The environment remains fast-moving given the CPI and PPI data that was recently released. This indicates that the underlying inflationary pressures (ex-energy / food / rent) are abating, and thus inflation rates should begin to fall rapidly over the course of the next couple of months. This should lead the markets to forecast the peak in the interest rate cycle and the equity markets should bounce.

That said, while the short term seems positive, the lag effect of the global interest rate rises is yet to be fully worked through the economy, the consumer remains under pressure and the CB are still reducing their balance sheets. Thus, this remains a bear market rally against the backdrop of a highly valued US equity market.

Fund Performance

It was pleasing to see the Strategic Global Quality Fund outperform its index by circa 80 bps during the period, returning +8.0%. At the sector allocation level, positive contributions were seen from Technology (+1.34%) and Consumer Discretionary (+0.89%), despite the Fund being underweight in these sectors. In comparison, negative contributions came from the Healthcare and Consumer Staples sectors at -1.10% and -1.07% respectively.

Individual Stocks

October was more interesting at the stock level than in previous months, with McDonald’s (+1.71%), AIG (+1.42), Schlumberger (+0.58) and Oracle (+0.57%) being significant positive contributors.

McDonald’s proved its resilience during tough economic times, given that it behaves anticyclical in times of consumer belt-tightening (people trade down to McDonald’s from more fancy options).

AIG benefits from inflation to boost its top line. Schlumberger is extremely positive on the oil service cycle for the midterm, while Oracle is demonstrating the transition from license to subscription sales for its products. Out of these four, Oracle is the only new position in the Fund this year.

On the negative side, only Maravai (-0.57%) is worth commenting on. Maravai is active in nucleic acid production (mRNA) which is gaining more traction on the success seen by Moderna with its COVID vaccination.

Expectations have been reset with regard to COVID volumes in 2023 (which we overestimated), and the company is also involved in a legal dispute with Danaher, from where it hired its new CEO.

Longer term, we believe the company to be very well positioned given it is experiencing rapid growth in the number of molecules on which it is working, as well as its number of clients.

We invite investors and prospects to contact us should they wish to receive any additional information.

Adam TurbervilleAdam Turberville
Director
+44 1481 742380
a.turberville@ericsturdza.com

The views and statements contained herein are those of  Banque Eric Sturdza SA in their capacity as Investment Adviser to the fund as of 22/11/2022 and are based on internal research and modelling. Please click on Disclaimer Page to view full disclaimers.