Positive US employment and retail stats above expectations


Fund Commentary
23 Jan 2015


December saw the now usual ingredients of positive economic activity and subdued inflation served in double rations.

The divergence intensified, firstly, as economic data proved broadly above expectations with a positive employment report, job openings, retails sales and a striking revision of Q3 GDP growth to 5%. Secondly, both CPI and PPI saw downward pressure from energy and given the confirmation of OPEC resolve and the resulting further correction in oil prices (-18%), a reversal of that dynamic remained out of sight. Forward inflation expectations, depressed as ever, also reflect this reality.

The market, pushed around by price discovery in all things energy, dipped 5% into mid-month, only to rebound following a cooperative tone taken by the Federal Reserve. By explicitly characterizing their current views as consistent with prior guidance, underscoring their ability to be patient and adroitly acknowledging the sub-target inflation, the Chair of the Board of Governors, Mrs Yellen delivered a largely unsurprising message and gave the market no reasons to rethink its inclination towards equities.

Against this backdrop, the Fund performed well and finished the month virtually flat (-0.03%), outperforming the S&P 500 Index (-0.42%) for a third straight month. Important contributors in December were the auto parts retailers, Advance Auto Parts and Autozone, lifted by positive earnings from the latter; as well as  two of the Fund’s semiconductor companies, Avago and Skyworks, buoyed by stellar earnings from the former. Apple and Actavis were the Fund’s primary detractors, largely a reflection of their strong performances in previous months which called for some degree of consolidation.

Whilst volatility picked up at the start of January, earnings publications at the end of the month are widely expected to act as a further differentiator and will also provide investors with precious insight concerning the first effects of the energy correction. In light of these developments, the Investment Adviser remains convinced of the pre-eminence of underappreciated, high quality, industry leading companies that can continue to grow on their own merits and further believes that the current environment is fertile for this strategy.

Commentary provided by Banque Eric Sturdza in their capacity as Investment Advisers to the Fund as of: 16/01/15.