No January effect as markets ponder macro, currencies, oil and earnings


Fund Commentary
16 Feb 2015


January was marked by a number of developments on the global macroeconomic stage, adding volatility to the commencement of quarterly earnings releases in the US.

After recording strong numbers in the prior quarter, US economic data initially came in more mixed as exemplified by the employment report showing a month-on-month decline in average hourly earnings. December retail sales also disappointed, and similarly the Consumer Price Index (CPI) inflation was below expectations. While always subject to revisions and short term aberrations, these numbers certainly contributed to less enthusiastic markets during the month, something which quarterly results, generally penalised by foreign exchange and continuing uncertainty in the energy complex, were not able to offset. The S&P 500 Index thus ended the month down -3.10%, versus the Fund at -1.77%.

The main developments however came from Europe, with the abandonment of the CHF/EUR peg marking the prelude to the eventually announced and highly awaited quantitative easing from the European Central Bank. Given the combination of a deteriorating growth/inflation outlook in the region and continued political gridlock, the size and the data-dependent nature of the program came as positive news to the market. It also proved to be a welcome counterweight to the deteriorating political atmosphere inside the Eurozone, where disagreements between the new Greek government and its European counterparts intensified and set the stage for further rounds of negotiations and as always, ample room for error. Aside from the high stakes political games, the divergences in monetary policy around the world and the consequences on global asset classes and economic dynamics will be the subject of careful scrutiny in the months and years to come, not least for US investors.

In the current round of earnings reports, the Fund’s companies have thus far performed very well. Top positions such as Constellation Brands, Apple, Blackrock and Mastercard all posted strong numbers, and those exposed to foreign exchange were able to offset some of it through better than expected operational results. At the time of writing, the portfolio’s strong earnings season remains firmly on track. The Investment Adviser remains convinced of the current portfolio’s attractiveness, both on an absolute and relative basis, and continues to look for opportunities in these times of increased volatility.

Commentary provided by Banque Eric Sturdza in their capacity as Investment Advisers to the Fund as of 10/02/15.