Newsletter | May 2024

Global economic growth expanded at the fastest pace in ten months



Investment perspective

April's correction seems almost forgotten thanks to May's rally, which took equity markets to new highs. But June is likely to be another volatile month, with the monetary policy decisions of the major developed central banks on the agenda. Recent economic data, particularly on the inflation front, has been broadly in line with consensus expectations, albeit with a glaring lack of progress towards the central bank's ultimate target of 2.0%. In the US, the personal consumption expenditure (PCE) price index excluding food and energy rose 0.2% in April (in line with estimates) and 2.8% year-on-year, or 0.1% above the estimate. More important, however, is the direction of core inflation. In April, core prices were up 3.6% year-on-year, down from 3.8% in March and up 0.3% month-on-month, the smallest monthly increase since December. In the UK, inflation continued to fall in April to its lowest level since July 2021, with consumer prices up 2.3% year-on-year. However, core prices, which strip out volatile food and energy prices, were up 3.9% year-on-year. Probably still too high for the Bank of England. Eurozone inflation rose 2.6% in May, higher than expected, while core inflation rose to 2.9% from 2.7% in April. Although May's figures were better than expected, it's worth remembering how far we've come since the peak of 10.6% in October 2022. May mirrored April across all fixed income segments. Bond indices were all in positive territory over the month. High yield (HY) markets and emerging market debt (EMD) more than recouped April's losses. Despite the rebound in May, the corporate investment grade (IG) segment remained in negative territory for the second quarter, with a negative return of 75 basis points for the quarter to date after a lackluster first quarter. With PMI indices in the major regions in the range generally associated with expansion (above 50) and encouraging developments in the eurozone, equity markets reached new highs in May. The US large cap segment gained 4.9%. In terms of investment style, growth outperformed value with a gain of 6.0% compared to 3.2% for value, while small caps returned over 5.0% for the month.  Although European indices underperformed their US counterparts (+3.3% in euro terms), the Swiss equity market staged a comeback, rising by 6.3% in local currency terms.


Investment strategy

Recent publications have partly allayed immediate fears of an uncontrolled resurgence of inflation, allowing US long-term rates to ease slightly over the month. As a result, the ECB is widely expected to cut its key rates on June 6th, and any other decision would be a major surprise. With the economy and labour market in relatively good shape, the Fed is expected to keep rates on hold until it sees more evidence that inflation is on track to reach its 2% target. The all-in yield, as well as the hope of capital gains once the central banks start cutting rates, has made fixed income quite attractive. These factors have attracted investors, as evidenced by flows into the corporate bond market. According to the latest release from Bank of America, investment grade (IG) corporate bonds recorded their 31st positive weekly flow, with $3.6bn in the week ending last Wednesday, the longest streak since 2019. Despite the strong inflows, fixed income markets, particularly those with high interest rate sensitivity, have suffered.  The ongoing inversion of the yield curve, caused by a slower decline in inflation towards the central banks' ultimate target of 2.0%, has led to greater caution regarding the speed and amplitude of policy rate cuts. This recalibration of interest rate expectations has made short-term bonds, and to some extent cash, attractive because of their favourable interest rate risk/return profile at a time when the path of interest rates is still quite uncertain.


One Stock Driving the Magnificient 7’s in 2024: NVIDIA +138% as of May 29th Close


Portfolio Activity/ News

After two months of fairly balanced returns in fixed income markets and modest gains in economically sensitive assets such as credit spreads and equities, we maintain a balanced positioning across asset classes, regions and sectors. Thanks to attractive all-in yields, our positioning remains broadly exposed to credit, which should continue to benefit from the growing acceptance that global economic growth will remain resilient and even improve in some regions. Admittedly, credit spreads have already tightened considerably in response to this favourable environment and are trading below the median spreads of the last 5, 10 and 30 years. However, while spreads reflect a lot of positive news, they have historically shown that they can remain tight for extended periods of time. Given the reduced uncertainty about the near-term path of US long-term rates, the improvement in emerging market economies and the easing of election deadlines following the results in Mexico and India, we are increasing our exposure to USD-denominated EM corporate debt. As we did a few months ago, we have added a long/short equity position within our European equity exposure to increase the resilience of this segment. In emerging markets, we maintain our conviction in Chinese domestic equities. It should be noted that our dedicated EM exposure is largely achieved through a dedicated bond component, which currently offers a more favourable risk/return profile than emerging market equities excluding China.

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Newsletter | April 2024

NVIDIA accounted for 41% of the year-to-date gain in the US Large Cap Index



Investment perspective

The paths of the major economies are increasingly diverging. In the United States, economic activity continues to expand, ruling out a recessionary scenario induced by cumulative monetary tightening. While US growth has probably peaked, it cooled more than expected in the first quarter of the year, growing at an annualized rate of just 1.6%, down from 3.4% in the fourth quarter of last year. Disinflation began in late 2022, but the pace of decline has slowed in recent months. Weaker growth combined with stubborn inflation could take us into the realm of stagflation, a term that has horrified most central bankers, as the last comparable situation was in the 1970s following the rise in oil prices caused by the Arab oil embargo. The euro area manufacturing sector continued to contract in April, but some positive developments should be highlighted, such as factory output shrinking at the slowest rate in a year. In contrast to the US, where the disinflation process has stalled, at least temporarily, European inflation has continued to fall, with the headline rate falling to 2.4% in March. April saw negative returns across all fixed income segments as long-term rates came under pressure. The 10-year US Treasury yield rose from 4.2% to 4.7%. European yields were not immune to this trend, with the 10-year Bund ending the month 30 basis points higher at 2.6%. Recent economic data spooked investors and triggered a general downturn, except for emerging markets. US blue chip equities fell by 4.2%. The decline was even more pronounced in the small cap segment, which fell by 7.0%. European equity indices fell less than their US counterparts, with little difference in market capitalization. The main European index fell by 0.9% in euro terms. The Japanese market was not immune to the selling pressure, falling 1.1% in local currency terms, exacerbated by the accelerating depreciation of the yen of around 4% in April alone. In China, the publication of better-than-expected GDP figures provided some relief to the growth momentum of the world's second largest economy. In the short term, the Chinese market rose by 6.6%, bucking the general decline in developed equity markets. Commodities can act as performance enhancers and offer countless opportunities. After gold and silver in March, base metals such as copper and zinc took over in April. Copper rose 13.9% over the month, benefiting from China's awakening and fears of tighter supply.

Investment strategy

The divergent paths of growth and inflation will force each central bank to pursue divergent monetary policies, in contrast to what we saw during the synchronized rate hike cycle. We still expect developed central banks, led by the Europeans, to start normalizing policy rates in June. As far as the Fed is concerned, it may postpone its first cut until September, with a more gradual pace than initially expected. Higher rates make bonds quite attractive from a valuation point of view. However, we remain cautious on duration. Our central scenario remains a steepening yield curve, which favors intermediate maturities given the current flat yield curve. Credit spreads have tightened, reflecting the growing acceptance of the soft-landing scenario. US equities remain relatively vulnerable to "higher for longer" rates due to high valuations (all measures well above multi-year averages and close to the highest levels in over two years). European equities look attractive relative to the US, especially if the ECB starts cutting rates in June. Pressure on the Japanese yen could trigger either higher interest rates or currency intervention, both of which would lead to tighter financial conditions, which are not favorable for Japanese equities. The outlook for Chinese equities has brightened and offers attractive relative undervaluation.


Q1 2024: US companies report higher net profit margin quarter-on-quarter


Portfolio Activity/ News

We had highlighted the favourable seasonality of April in terms of market returns and the critical levels reached by various technical indicators. This technical configuration led us to be more cautious in our allocations than at the beginning of the year. A cautious stance was clearly rewarded during the month, whereas blindly following historical observations would have resulted in significant losses. Against this volatile backdrop, it is worth noting the positive performance of our L/S manager in US equities, which delivered positive return. To take account of the deterioration in the technical picture, particularly in US 10-year Treasury yields, we reduced our equity allocation during the month in favour of cash. We continued to make adjustments to the composition of our equity portfolio. We took profits on so-called growth stocks in the US, Europe and globally and reallocated part of the proceeds to value managers in order to achieve a better sector balance and factor exposure (value versus growth). We have not changed our bond positioning, which remains generously exposed to credit (IG and HY) and emerging markets. The sensitivity to volatility remains moderate, given the flat yield curve and the expectation that the curve will steepen. We recognise that at these yield levels, rates are competitive and offer good protection in the event of a more pronounced economic downturn. We maintain our weighting in liquid alternative strategies, which should continue to add to performance, as they have done since the beginning of the year, thanks to their exposure to commodities.

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Newsletter | March 2024

The US Large Cap Index hit eight new closing highs in March



Investment perspective

Despite the most aggressive tightening cycle, the US economy continues to defy the historical relationship between economic growth and interest rates. We expect US real GDP to grow by around 2% this year, with the potential for upside surprises. Recent headline inflation readings have pointed to some upward pressure, while core inflation has declined slightly, without calling into question our central scenario of a gradual decline in inflation towards 2.0%. Eurozone inflation surprised to the downside in March, with headline inflation coming in at 2.4% year-over-year, below the consensus of 2.6%. The SNB, acting very independently, surprised the market by starting the long awaited cycle of rate cuts among developed central banks. The Fed and the ECB have reiterated their intention to cut rates several times this year and next. Despite higher-than-expected inflation rates, the Fed expects that stronger than-expected labor force growth and increased investment will stimulate the supply side to the point that inflation will continue its downward trend. The BoJ raised its key rates (dovish hike) but will continue to buy large amounts of government bonds each month. The 10-year US Treasury yield fell slightly to end the month at 4.2%, while in Europe the 10-year Bund followed the same trend to end the month at 2.85%. US large cap equities hit eight new closing highs in March, rising 3.1% for the month. Breadth improved over the month and was strongly positive, with the equal weight index gaining 4.4%. We are seeing an increasing divergence in the return patterns of the Magnificent Seven, with Tesla down 29.3% year-to-date. European equity indices rose by 4.4% in euro terms over the month, outperforming their US counterparts. It should be noted, however, that while the market breadth is also underway, it is still very tentative. In line with the start of the year, emerging markets continue to lag, while the Japanese market continues to deliver an excellent return in local currency terms, up more than 19% year-to-date. The highlight of the month was undoubtedly the surge in gold and silver prices, up 8.3% and 10.1% respectively over the month, as lower interest rates increase the appeal of holding non-yielding bullion.

Investment strategy

The near-term growth outlook in the US remains solid, with economic data continuing to surprise on the upside. The median forecast for real GDP growth in 2024 has risen from 1.4% at the December FOMC meeting to 2.1% today. The Eurozone economy is on the upswing, with the latest business surveys pointing to the fastest expansion of private sector activity in ten months. Business optimism rose to its highest level since the eve of Russia's invasion of Ukraine. The eurozone's economic recovery should continue, with growth forecasts for the first half of 2024 potentially revised upwards. The main risk is a rise in commodity prices, which could lead to a resurgence of inflation in European economies. European leading economic indicators are clearly picking up, but Europe’s still very attractive valuations suggest that a lot of negative news is still priced in. The probability of positive surprises could therefore increase as the European economies regain traction. The Swiss equity market could benefit from the recent interest rate cut by the Swiss National Bank and the weakening of the Swiss franc. These developments will help mitigate the headwinds faced by Swiss companies last year and contribute to positive earnings revisions.


Estimated 1Q24 y/y earnings growth rate for the S&P 500 is 3.6%, third straight quarter of y/y earnings growth


Portfolio Activity/ News

Many technical indicators have reached levels historically associated with tops, but the trend is still our friend as it remains clearly up. Investor optimism could continue into April, which is historically one of the strongest months of the year for the US equity market. We are therefore maintaining our overweight in equities, with a clear preference for European equities, to take advantage of the current macro and market momentum, although we have reduced this overweight somewhat. We have also made some adjustments to the composition of our equity exposure, increasing the allocation to a top-down strategy at the expense of strategies with a strong growth bias. Chinese equities were very oversold and the recent rally has helped a little, but market psychology is extremely bearish on Chinese equities, which can be interpreted as a contrarian signal for this market. We are maintaining our exposure to Chinese domestic equities. The Chinese A-shares are our main exposure to emerging markets in our portfolios. Our bond portfolio remains exposed to both investment grade and high yield credit as well as hard currency emerging market debt. We added to the latter in March. Although our interest rate sensitivity has increased, it remains lower than that of the main bond indices. We are keeping a close eye on the resistance level for US yields (4.35% for the 10-year yield), as a breach of this level could send a particularly negative signal to the markets.

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Newsletter | February 2024

S&P 500 reached a record high in January (4’931.09) for the first time since January 2022



Investment perspective

In the US, the latest economic data showed that gross domestic product rose at a revised annualised rate of 3.2% in the fourth quarter, compared with a previous estimate of 3.3%. Between the beginning of January and the end of February there were even signs of a slight upturn in US economic activity. There have been mixed signals from the labour market and on the inflation front. The strength of the labour market and the renewed tensions on the inflation front clearly support the Federal Reserve's position. The main consequence of these robust figures is that they have removed any chance of a first cut before the June meeting. In Europe, the ECB left interest rates unchanged. After a period of optimism, with expectations of more than 100bps cut as early as April, market expectations have adjusted to a 90-95bps cut from June, in line with the Fed. In Japan, the government reported that the economy contracted at an annual rate of 0.4% between October and December, although it grew 1.9% for the year, but contracted 2.9% in July-September. The stronger core CPI pushed JGB yields higher and should be a warning sign that the $20 trillion global carry trade financed by shorting the JPY is likely nearing an end. The flash manufacturing PMI fell to 47.2 in February from 48.0 in January, signaling a ninth consecutive deterioration in operating conditions, the most since August 2020. US Treasuries were significantly weaker, with the 10-year US Treasury yield ending the month at 4.25%, while in Europe the 10-year Bund also ended the month higher at 2.41%, up from 2.02% at the end of December. US stock indices ended the month higher, closing above 5,000 for the first time on 9 February. Major technology companies were higher overall, helped by the continued momentum of Nvidia (+28.7% over the month). Europe was not left behind, with the main European index reaching a new all time high. As in 2023, the UK index lagged due to its exposure to mining, oil, and real estate. It should be noted that corporate earnings were better than expected, which should continue to support price rises. The dollar was again particularly strong against the yen and was flat against the euro. Gold closed down 0.6%, while oil was higher (up 3.2%).

Investment strategy

The broad consensus on the path of interest rates remains uncertain, but the market expects rates to move lower, with 100 bps of easing in the US this year starting in June. After the strong rally in markets into year-end, valuations across asset classes look somewhat stretched, for example spreads on the fixed income side as well as equity indices. Despite acknowledging stretched trailing PE multiples, many strategists have raised their annual target for the S&P 500. Driven by a handful of names, large cap EPS forecasts are trending higher, while small and mid cap index earnings continue to trend lower. Momentum and quality indices continue to outperform value year-to-date. This is true across and with asset classes especially the Nikkei, which has reached record levels and is one of the best performing equity indices in local currency terms so far this year. In the US, several technical records are being tested by the ongoing exuberance, including 16 positive weeks out of the last 18 - the best streak since 1971 - and a market rally (+24%) without a 2% decline in 20 years. Indicators suggest that, based on historical patterns, a correction may be overdue. For the first time since last summer, China's stock indices are trading above their 50-day moving average.


Emerging Market Sovereign Hard Currency HY was up by 2.10% in February, while IG was down by 0.61%


Portfolio Activity/ News

The correction in the rate cut expectations of the major central banks in the developed world is now more in line with the message they have been distilling for the past year. This rebalancing should underpin the credibility of central banks in their determination not to act too hastily at the risk of seeing inflation rise again. Against this backdrop, we believe it would be prudent to increase our bond weighting in order to increase the interest rate sensitivity of our portfolio. We have therefore initiated a position in long-dated government bonds to take advantage of the expected easing in long-term yields. At the same time, we are maintaining a large proportion of our bond portfolio in both investment grade and high yield corporate bonds. While remaining constructive on markets, we decided to continue taking partial profits on some of our global equity holdings. After this reduction, we remain overweight in equities, with a preference for Europe, China and US technology. We reiterate the value of alternative strategies, particularly trend strategies, in this environment of trend extension. We have therefore increased our positions in alternative trend strategies, which combine price and macro signals, and in our existing global macro strategy.

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Forum Finance wins four awards
at the WealthBriefing Swiss EAM
Awards 2024

Forum Finance wins four awards
 at the WealthBriefing Swiss EAM
Awards 2024

Geneva, 7 March 2024 – Geneva-based independent asset manager The Forum Finance Group SA has won four major awards at the WealthBriefing Swiss EAM Awards 2024. In particular, it was declared winner by the jury in the Next Generation Program, Wealth Planning Team, Servicing LatAm Clients categories and Cyrille Urfer was ranked best Chief Investment Officer (CIO).

Announced during the prize-giving ceremony held last night in Zurich, the awards showcase the ‘best-of-breed’ players in the Swiss independent asset management industry. They recognise outstanding companies, selected through a rigorous process and deemed by a panel of experts to have ‘demonstrated innovation and excellence during the last year’. The independent jury comprises specialist consultants, representatives of custodian banks and technology solution providers, as well as other industry experts. These prestigious accolades are particularly important in the current challenging times as they provide clients reassurance in the solidity and sustainability of their asset manager’s business and operating model.

With regard to the Next Generation Program, the panel was ‘impressed with Forum Finance’s internal NextGen program, as well as with their commitment to educating clients around preparing for the Next Generation. In particular, Forum Finance hosted events in Geneva for their clients’ children to introduce them to the world of finance and showing the importance of taking responsibility’.

Concerning the Wealth Planning Team, judges felt that ‘hiring a dedicated wealth planner at partner level, who is focused on NextGen topics, but also in succession planning for their entrepreneurs/clients gives the firm a deep understanding of delivering on client’s needs’.

In relation to Servicing LatAm Clients, the jury found ‘very impressive that Forum Finance has had for over 10 years a dedicated very senior team taking care of the Latin American clientele, with a wealth management offering encompassing wealth planning, portfolio management, asset management and family office services’.

Finally, the expert panel voted Cyrille Urfer best Chief Investment Officer (CIO) on the grounds of his impressive career working for big commercial banks and sovereign investment authorities, as well as leading private banks and asset managers. A veteran Swiss banker, with over 25 years of experience in EU and Middle East, Cyrille Urfer is an internationally recognised expert for his expertise in investment strategy, assessment and selection of managers/strategies, and portfolio management.

Hippolyte de Weck, Managing Partner and CEO of Forum Finance, stated: “We are truly honoured to have our strengths and achievements recognized by these four industry awards. Over the past 30 years, our company has grown significantly to become today one of the leading players in the Swiss market. We are particularly proud of the prize for Best CIO, as providing sound investment advice and achieving superior performance remains at the heart of our business.”

Indeed, having anticipated the evolution of the wealth management industry, Forum Finance has strengthened its structure and organisation over the last few years, as evidenced by the CISA licence granted by FINMA in 2015 and its registration as investment adviser with the US SEC in 2016. Forum Finance invests constantly in its research, investment management and wealth advisory resources, as well as in technology, enabling it to respond effectively to the changing needs of its clients.

For additional information, please contact :

Egon Vorfeld
The Forum Finance Group SA
T: +41 (0)22 552 83 00

Ricardo Payro
Payro Communication Sàrl
T: +41 (0)22 322 13 17

About Forum Finance

Founded in 1994 in Geneva, Forum Finance offers private banking and asset management services to a high-end global clientele. It has 25 employees who manage and supervise around CHF 2 billion. The company is authorised under the CISA licence by FINMA and is registered with the SEC as investment adviser.

Newsletter | January 2024

S&P 500 reached a record high in January (4’931.09) for the first time since January 2022



Investment perspective

In January, US economic data continued to support the outlook for continued economic strength while disinflation remained in evidence. In Europe, the Eu-ropean Central Bank (ECB) kept interest rates unchanged. On the economic front, the release of the composite Purchasing Managers’ Index beat expecta-tions, suggesting that manufacturing activity is bottoming out. Against this backdrop, asset class performance was mixed over the month. Fixed income indices posted slightly negative returns, with the long-dated gov-ernment bonds posting the largest decline as long-term yields rose, reversing the gains seen in December. US and European 10-year yields were mostly higher as the curve steepened. There was some relief in the US at the end of the month thanks to lower expectations for US Treasury borrowing. As in 2023, high yield corporate bonds, especially European ones, were again the best performers with a return of 1.1% thanks to a significant narrowing of average spread levels (381 bps for pan-European high yield versus 399 bps at end-December). Equities started the year on a weak note before rallying strongly to end the month higher, despite the Fed's hawkish tone at its January meeting and Chair-man Powel's comments that he did not think a March cut was likely. In terms of returns, we observe the same hierarchy as last year, with Japanese equities (+8.5% in local currency) leading the pact, followed by US large caps (+2.5%), helped by some technology names, and finally Indian equities, while small caps (-3.9%), global emerging markets (-4.6% in USD) and China (-10.6%) were the laggards. It is worth noting that the S&P 500 reached its highest level ever dur-ing the month as the "Magnificent Seven" continued their fantastic run. Commodities delivered positive returns with oil gaining ground, with WTI crude up 5.9%, as tensions in the Middle East escalated and disruptions to shipping routes continued. Gold lost just over 1% in US dollar terms after hitting a new all-time high in December, reflecting a stronger dollar (the dollar index rose 1.9% over the period after three consecutive months of decline).

Investment strategy

So far this year, at least in the US, the 2023 laggards are back to lagging and the winners are back to winning as demonstrated by the performance of the US momentum index, which returned 5.6%. Risk asset prices are significantly higher than three months ago, thanks to the Fed's shift from "higher for longer" to "we are done hiking to ease in 2024". However, the timing and pace of rate cuts remain uncertain, as does the path of quantitative tightening (QT). Although the Fed has signalled its intention to cut three times this year, future markets are pricing in more cuts, assuming that the Fed will act faster and more than it has publicly signalled. Long-term interest rates in developed markets have peaked and offer attractive yield levels. Although interest rate cover has started to deteriorate, corporate fundamentals are starting from a position of strength. As credit spreads have tightened, we should therefore expect that future total returns to be driven mainly by carry rather than spread tightening. After the rally since the end of October, it is time to trim the sails by gradually reducing the directionality of our exposures and building up some liquidity reserves to take advantage of any opportunities that market volatility may present.


Pan-European high yield yields are still above 7.6% and spreads are actually tighter (381 bps) than a year ago


Portfolio Activity/ News

Our positioning since the end of October has allowed us to participate to a large extent in the rally in the last three months. Aware that credit spreads are tight, we are nevertheless maintaining our credit exposure, particularly in high yield, while favouring greater selectivity and quality. We maintain a generous equity weighting in our portfolios, but recognise that greater caution is undoubtedly warranted. We are gradually reducing our equity market positions by a few percentage points and reintroducing long/short strategies into our US equity portfolio. In both Europe and the US, we continue to favour a bias towards quality growth, without ignoring the potential benefits of value. We remain constructive on small caps, particularly in Europe and Switzerland. Although our call on China has proved painful so far, we are maintaining it and taking the opportunity to bring this weighting back to the desired level after the downturn. Finally, our allocation to liquid alternative strategies will reflect our less directional approach to markets by reducing our high beta investments in favour of less directional strategies. We will also introduce an alternative trend strategy to complete our alternative bucket, with the aim of adding further resilience to the overall portfolio.

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Outlook 2024

Executive summary

The year 2024 will be marked by the continued normalization of monetary policy around the world, heightened geopolitical tensions and uncertainty about the decline in inflation.

Rising interest rates and bond yields have fundamentally changed the basis for all investment decisions. This paradigm shift will favour bond investors, who will benefit from higher expected returns, but will further weaken highly indebted actors, especially governments.

Although interest rates have peaked, structural inflationary pressures, such as rising protectionism or the energy transition, will certainly increase the risk of higher inflation than we have seen in recent decades.

As we enter 2024, undoubtedly a year of transformative change, investors' agility will be an asset in seizing the opportunities that volatile markets will offer in the quest not only for wealth preservation but also for real growth.

Economic Outlook

Slower growth ahead but still slightly above potential

US growth to outperform developed peers

China growth upgraded to 4.6% in 2024

Headline inflation falls in all G10 economies except Japan

Core inflation has also fallen, but at a slower pace

Developed central banks have reached the end of their hiking cycle

Monetary policy normalization underway in Japan


Best Investment Opportunities

High nominal and real yields provide a means of locking in cash flows

Front end of curve attractive due to flat yield curve beyond 3 years

Interest rate cuts make cash less appealing

Emerging market corporate debt offers attractive carry

Yields of around 8% for high yield are rare and followed by double-digit returns

European equities set to outperform US equities

Small caps or equal-weighted index trading at significant discount to large caps

Favourable risk/reward profile for Chinese equities


Key Risks

Rising inflation could delay central bank rate cuts

US consumer spending slows sharply

China’s economic woes persist

Unchecked geopolitical tensions and conflicts


Table of contents

  • OUTLOOK FOR 2024

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Newsletter | December 2023

S&P 500 and Nasdaq both posted their biggest monthly gains since July 2022



Investment perspective

November saw broad-based gains in bond and equity markets on the back of slowing inflation and easing interest rate pressures. As expected, the FOMC left interest rates unchanged, although Chairman Powell indicated that the Fed would raise interest rates if warranted by the data and economic conditions. The latest release showed that the US economic activity had slowed, with mixed consumer activity due to higher price sensitivity.

Fixed income markets, particularly those with high interest rate sensitivity, reversed course after three months of declines and posted broad-based gains. The US 10Y ended the month at 4.34% (it reached 5.02% in October), down 80 bp from its peak but still higher than in January, while the German 10Y ended the month at 2.45%, 10 bps lower than at the end of 2022. The recent release of lower-than-expected preliminary eurozone CPI for November, which rose 2.4% y/y, slowing from 2.9% in October, acted as a catalyst.

Strong gains in the government bond sector, e.g., US Long Treasury up 9.16%, were accompanied by a tightening of credit spreads, which helped all credit segments. For example, the US dollar hedged Global Aggregate Index gained 5.7%, the Global Aggregate Corporate and Global High Yield gained 4.7% and 5.4% respectively, while the EMD High Yield gained 6.1%.

Consumers ended the month better than expected, with Black Friday online shopping estimated at a record $9.8 billion, Cyber Monday sales estimated at a record $12 billion and total Thanksgiving sales estimated at $38 billion. In this context, the All-Country World Equity Index rose 8.1% in local currency terms, 9.2% in US dollar terms and only 5.8% in euro terms. Breadth improved significantly in November. In the US, the large cap index was up 9.1%, while the tech heavy Nasdaq 100 was up 10.7%. Europe, Japan, and emerging markets gained 6.4%, 6.0% and 8.0% respectively. Within Europe, it is worth noting that the small cap index strongly rebounded, rising almost 9% in euro terms.

The US Dollar Index (DYX) was under heavy pressure and closed 3% lower, the Emerging Market Currency Index gained 2.8% and the Chinese Renminbi gained 2.5%. West Texas Crude Oil ended the month down 6.2% while Gold gained 2.7% over the month. The equity volatility index (VIX) fell to 12.9%, its lowest monthly close level in 2023.


Investment strategy

October’s CPI confirmed the disinflationary momentum, with the annualized core CPI at its lowest level since September ‘21, while the core PCE fell to its lowest level since March ‘21.

The release of better inflation data came as a relief, allowing the US 2-year Treasury yield to fall 35bp to around 4.7% and the US 10-year yield to fall 55bp to around 4.35%. The rise in interest rate contributed to a significant easing in financial conditions amid growing optimism about the end of the tightening cycle.

Since the November FOMC meeting, we have seen a significant shift in Fed funds rate expectations. Indeed, market participants are now pricing in a near-zero chance of a rate hike in December. Despite Fed officials reiterating their “higher-for-longer” message, the market’s median expectation for the fed funds rate at the end of 2024 fell from a high of 4.83% to 4.19% at the end of November.

The potential pivot in central bank policy, positioning and improved sentiment were the main drivers behind the market rally. EPFR flows data showed a net inflow of $40bn into global equities in the two weeks to 21 November. In the US, the 3Q earnings season ended with growth of around 4.8% as at 30 November. The focus now turns to 4Q23, which fell further this month to 2.9% from 8.0% at the end of September, putting the double-digit earnings growth rebound in 2024 under greater scrutiny.



Portfolio Activity/ News

US indices broke a three-month losing streak, while Treasuries posted one of the best monthly performances on record, with a rally across the curve and some flattening. As highlighted in October, the market rallied strongly on a positioning tailwind that could continue as trend strategies and shorts continue to unwind positions.

We started the month with an overweight position in equities, which we increased during the month with some rebalancing out of defensive strategies such as US long/short and global low volatility in favour of a global strategy that uses a very compelling combination of macro decisions with more traditional bottom-up stock picking as part of the process.

In fixed income, we carried on our gradual increase of our interest rate sensitivity and maintained our constructive stance on credit including our emerging market high-yield corporate debt position.

Similar to our equity allocation, we have reduced our positions in credit long/short strategies and those invested primarily in leveraged loans, which have very low interest rate sensitivity.

Our allocation to liquid alternative strategies has remained broadly unchanged, with a clear preference for risk-parity strategies over trend and global macro strategies, while recognizing that trend strategies may have been repositioned after the rally and could therefore benefit from further upside.

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Newsletter | November 2023

U.S. 10-year yield flirted with 5.0 percent, finishing at 4.93%, down from the high of 5.02%



Investment perspective

All inflation metrics have slowed considerably since their peak, but all remain still above central bank targets. Despite this, developed central banks in major developed markets have reiterated their decision to pause monetary tightening cycle, which could mean that we have indeed reached the end of the cycle. Despite central banks pause, the US 10Y yields rose just over the 5% mark and has conditioned market behavior and returns. At 4.93% at the end of October, yields have not been this high since mid-2007. The 2Y/10Y spread finished the month at 16 bps after peaking at over 110 bps in July.

October was a terrible month for financial markets. It was an awful one for eq-uity markets, but also for bondholders across all sectors especially for those with long maturities. The Global Aggregate index hedged in U.S. dollar was down 0.7%, the Global Aggregate Corporate and Global High yield were down 1.0% and 0.9%, respectively, while EMD USD Aggregate dropped 1.5%. As in September, the worst performance was recorded on the US Long Treasury seg-ment with a decline of 4.9% after an 11.8% drop in the 3rd quarter.

The All-Country World index recorded a decline of 2.7% in local currency and more than 3% in U.S. dollar. In the US, the Equal Weight Index fell by 4.1%, while the main index was down 2.1%. In addition to the sharp decline in small-cap indices (-6.3%), we also note the significant and consequential fall in value-style indices (-3.5%) compared to growth indices such as the Nasdaq 100 (-2.1%). European indices started the 4th quarter on the back foot as well, slipping 3.6% in October. Mid- and Small caps materially underperformed large caps with declines of 4.8% and 5.9%, respectively. In U.S. dollar, emerging markets declined by 3.9%, China A by 3.0% and Frontier markets by 5.8%.

The U.S. dollar index (DXY) strengthened marginally (+0.5%) while the Japanese yen continues to plummet to new lows against the U.S. dollar. As is often the case in these risk-off phases linked to geopolitical tensions, the price of gold benefited greatly, rising by 7.3%. More surprising was the 10.8% fall in the price of the West Texas crude oil.


Investment strategy

At the beginning of the year, the consensus view was that a recession was inevitable, due to the rise of oil prices and, above all, due to a restrictive monetary policy that saw key interest rates raised at an unprecedented speed and level.

Some nine months later, the latest release of the real GDP growth for the US economy in the third quarter was surprisingly strong, with an annualized growth of 4.9% q/q. The situation is quite different in Europe, where the latest publication confirmed an anaemic growth that is flirting with the levels generally associated with a contraction phase.

After a spike in inflationary pressures in the wake of rising oil prices, the figures published in October showed a decline, which should reassure central banks. As a result, we do not expect any further rate hikes and believe that we have reached the peak of the cycle.

In the US, the long-term interest rates have risen on the back of continued economic strength, particularly in the labour market, which has further postponed a rate cut and the growing need for issuance to finance the budget deficit.

As bond yields have risen in recent month, the asset class should come back in favor with investors. What’s more, reduced uncertainty over the path of key interest rates and falling inflation rates should support both sovereign and investment-grade bonds, which are generally more interest-rate-sensitive than high-yield bonds.



Portfolio Activity/ News

Market developments in October will undoubtedly have tested investors’ nerves, but also important technical supports. The next few weeks will be decisive, as we could either see an acceleration of the downtrend or a major rebound to correct the oversold situation observed on many markets. In the event of a rebound, this could be violent, as such a reversal in the trend for interest rates and/or equity indices would force trend strategies to close their short position in both interest rates and equity markets.

We are maintaining our favorable view on equities, an over-weight stance that we have gradually increased in October, and are continuing to rebalance our bond holdings towards a better balance between interest rate and credit risk.

Within fixed income, we are maintaining our exposure to emerging market high-yield corporate debt, where we believe the carry is sufficient to mitigate country and specific risk of the market segment. In emerging market equities, and more specifically China, we have replaced our greater China exposure with domestic Chinese A shares.

Within our liquid alternatives allocation, we have taken some profits on our trend strategies and now remain neutral on that group of strategies. The proceeds were reinvested in our dedicated risk parity strategy bucket, a strategy that aims to provide an effective and efficient access to a broad set of asset classes including commodities such as gold.

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Newsletter | October 2023

U.S. 10-year yields hit 16-year peak as Fed seen higher for longer



Investment perspective

As widely anticipated, the US Federal Reserve decided to hold its target rate range steady at 5.25-5.50%, the highest level in 22 years. In their newly released “dot plot”, at least one more hike is in the card this year and that cuts would begin later than previously signaled. The ECB raised rates 25bps to 4% and signaled that it was likely be the last increase. The BoE and SNB surprised investors with their decision to take a break from their rate hiking cycle. As Investors are internalizing the likelihood that rates will stay higher for longer, U.S. treasuries were notably weaker with the curve bear steepening. The U.S. 10-year yield rose nearly 90bps, touching its highest level since 2007. The 2-year/10-year spread, inverted by more than 100 basis points on June 30, before narrowing to 50 basis points by the end of September. In that context, bond markets posted a second consecutive month of declines across all sectors. The Global Aggregate hedged in U.S. Dollar was down 1.7%, the Global Aggregate Corporate -1.9% and the Global High Yield -1.1% while EM USD Aggregate was down 2.3% The worst performer was the US Long Treasury segment with -7.3%. Global equities continued their downward trend, with the All Country World index recording a decline of 4.1% in U.S. Dollar. Contrary to August, developed markets suffered more than emerging markets, with a decline of 4.3% and 2.6% respectively. Major US equity indices were down in September, a month that lived up to its reputation as the worst month of the year in terms of returns. The U.S. large cap declined by 4.8% while the heavy information technology index was down 5.8%. European equities held up better, with a decline of 1.6%, as did Japanese equities, up 0.3% in local currency. Chinese equities were down 2.6% in U.S. dollar while Indian equities were up 1.7% expressed in U.S. dollar. With oil prices recently reaching record highs for the year in 2023, energy prices continue to pose a significant risk to the disinflation narrative. The U.S. Dollar index was up 2.5% while gold was down 4.7%, logging a decline for the second straight quarter.


Investment strategy

Several equity indices hit their highs during the third quarter, before declining significantly, reducing year-to-date returns. The road to a soft-landing may be winding and full of diverging signals but hopes for such a scenario remain intact despite a very aggressive monetary policy. Several Western central banks have not raised interest rates further in September even if inflation remains above the 2% target. These announcements would seem to signal the end of the monetary tightening cycle and the opening of a stabilization phase for short-term interest rates. This phase of rates plateauing around current levels is likely to last several quarters before possible rate cuts in the second half of 2024. The main risks of the current soft-landing scenario are either a more severe slowdown in economic activity or continued strong growth leading to a resurgence in inflation. Even if inflation will only fall gradually, we passed the peak a few months ago, and the theme of disinflation is still relevant. Against this backdrop of moderate growth and disinflation, we find corporate bonds attractive, even in the event of rising defaults, as they offer carry with limited interest-rate risk. Like economies, markets are at a crossroads following recent price action that pushed them close to critical technical levels and into an oversold situation that are generally rare opportunities to increase market exposures.



Portfolio Activity/ News

Considering that we had reached terminal rates, we tactically increased our equity weighting in September and are maintaining this position.
Our rather cautious stance on long-dates bonds has proved judicious, and we are maintaining this positioning, while recognizing that we could selectively take advantage of any price exaggeration. We remain confident about our short-dated corporate bonds exposure. However, we recognize that even a moderate deterioration in economic conditions because of tighter financial conditions will create some challenges for highly indebted companies, causing default rates to rise. After a phenomenal rally in the first part of 2023, technology companies and, more generally, so-called growth stocks fell sharply in August and September due to an increase in the likelihood of interest rates remaining higher for longer. We took advantage of this selloff to initiate a position in a strategy focused on investing in exceptional growth companies. As a provider of diversification and return in adverse markets, it is interesting to note the very good performance of our alternative strategy bucket. Indeed, our trend-following exposure recorded a positive return of more than 5% in a complicated market for both bonds and equities.

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