Newsletter | November 2022




Investment perspective

Following a dreadful September, the month of October provided much welcome relief for investors thanks to a rebound of developed markets’ equities. One of the main drivers for this rally was the perception that key central banks might be getting closer to slowing the pace of their rate hikes following the decisions by the Bank of Canada and the Reserve Bank of Australia to raise interest rates by less than expected. The rise of equities was accompanied by a pause of the US dollar rally, tighter credit spreads, and an upwards move of the US yield curve. A significant underperformance of emerging market equities was also observed, as they recorded a monthly drop, largely as a result of Chinese equities plunging further from already depressed levels. In terms of investment style, Value outperformed Growth, and energy was the best performing sector, supported by rising oil prices. October also provided a much needed return to calm for UK assets after the replacement of Liz Truss, who became the shortest serving UK prime minister, by the former chancellor Rishi Sunak. The UK yield curve shifted down materially, with 2-year and 10-year Gilt yields dropping by 95bps and 58bps, respectively, whereas the pound recovered some of its recent losses. 

With more than 80% of the S&P 500’s market cap having reported, earnings have beaten estimates by 3.6%, with 66% of companies topping projections. Earnings per share growth is on pace for 5.9%, assuming the current beat rate for the rest of the season. Even if the beat rate was inferior to those of the previous quarters, amid lowered earnings’ expectations, companies’ results proved to be supportive for equity markets overall. What was quite striking was that equity markets continued to rise even if the share prices of some of the US mega-caps, including Amazon, Alphabet, Microsoft and Meta, were badly hit by a set of disappointing reportings. 


Investment strategy

At the time of writing this newsletter, the Federal Reserve has just announced another 75bps rate hike, as expected by the markets. What was less anticipated was the tone of Jay Powell’s press conference; equity markets had been rallying on the assumption that the Fed could be approaching the end of its hiking cycle and could even cut rates next year. Fed chair Powell made it clear that the US central bank still had work to do, and that real interest rates had to turn positive, implying that markets’ expectations were too optimistic in relation to future Fed fund rates. We were not in the camp expecting the Fed to turn more dovish, and this explains why we had not increased our equity exposure. In reason of the deterioration of the global economy, restrictive monetary policies, and a risk of further earnings’ downgrades, we have maintained our equity underweight.

It has been a disappointing month for Chinese equities, but we continue to believe that an exposure to the country still makes sense despite the ongoing headwinds. Overly cheap valuations, a significantly underweight positioning by foreign investors, and the prospect of some policy support are just some of the main reasons why we remain invested.



Portfolio Activity/ News

October was a positive month for the portfolios thanks to the rebound of developed markets’ equities. US and European Value funds, metal mining equities, the Healthcare fund, and US small caps provided the best contributions. The positive return of portfolios was, however, dented severely by the exposure to Chinese equities, and to those of emerging and frontier markets. The overall contribution of fixed-income was negative due to the declines of emerging market debt and the long duration investment-grade fund, even if convertible bonds did provide some positive returns. The overall contribution of the alternative exposure was neutral, with the recently added L/S US small cap fund continuing to perform well. For portfolios not denominated in USD, the depreciation of the US dollar was a detractor.

In October, we added a high yield bond fund to our list of approved funds. The particularity of this fund is that it is managed based on a fixed maturity approach, with the fund ending at the end of 2026. This means that all the underlying bonds will have maturities with a maximum of six months longer than the end of 2026.This approach is more defensive than a traditional bond fund, as risk factors such as credit risk, duration and volatility, decrease over time. We believe that the next months could provide a good entry point for the strategy, if credit spreads were to widen more.

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Newsletter | October 2022




Investment perspective

The early-month optimism of investors in September quickly gave way to severe market angst due to higher-than-expected inflation data and hawkish central banks. In a scenario often observed this year, yield curves moved up materially and equity markets tanked. The Local Currency MSCI World Index plunged by 8.5%, with US and EM equities underperforming and European ones faring somewhat better. The rise of bond yields was steep, and key bond indices dropped between 3% and 5%; 2-year Treasury yields climbed by 76bps to end September at 4.2%, with 10-year ones rising by 64bps to 3.8% after briefly breaching 4%. The moves on UK sovereign debt proved to be even more dramatic; 2-year and 10-year Gilt yields jumped by 122bps and 129bps, respectively, as markets reacted poorly to new UK government tax policies. The appreciation of the US dollar accelerated during the month, with the Japanese yen and the British pound finding themselves under particularly acute selling pressure; for the first time since 1998, Japan intervened in the currency market to support its currency, and it took an emergency statement by the Bank of England to help the pound to recover some of its losses.

As expected, the Federal Reserve hiked interest rates by 75bps in September to a 3%-3.25% range. The bank’s Chair Jerome Powell also delivered a more hawkish message, leaving little doubt that more outsized hikes would be announced at the upcoming meetings, leading to an end-2022 rate of 4.5%. The ECB also increased rates by 75bps last month, at the high end of market forecasts. The ECB is currently widely expected to rise rates by another 1.25% by the end of the year to a level of 2%. Markets are now anticipating the ECB’s policy rate to be increased to around 3% in 2023, a significant ramp up of expectations compared to only a few weeks ago.


Investment strategy

Following the reduction of our equity positioning last month, we did not change our asset allocation in September, with both equity and fixed-income asset classes remaining under-weight. In contrast, the exposure to alternative strategies is overweight and has contributed to limit some of the market volatility, and to preserve capital in these challenging market conditions. Our assessment is that markets are still struggling to correctly price in the path of monetary tightening, and the instability of bond markets continues to negatively impact all the other asset classes. The ongoing strength of the US dollar is another factor which is preventing any significant rebound of equity markets. In view of the extreme level of uncertainty on key issues, including geopolitical risks, rising interest rates, inflation, currencies and Chinese economic growth, visibility is extremely low, and forecasts are of little help.

In this environment, we try to filter out the short-term noise and prefer to invest over the long term, and not attempt to time the market. We continue to believe that well-diversified portfolios are the best way to navigate in the current market environment.



Portfolio Activity/ News

September was a brutal month for portfolios as both bonds and equities recorded steep losses. Alternative strategies outperformed long-only exposures significantly and, for portfolios not denominated in USD, the US dollar exposure was a positive contributor. The trend-following CTA strategy provided the unique positive contribution while other hedge funds were either flat or only marginally negative. The main detractors were the real assets fund, badly hurt by higher bond yields, Chinese and EM equities, the global technology fund, as well as various Value funds. In the fixed-income space, investment grade sovereign debt funds with a longer duration and EM bonds fared the worst, whereas credit funds with some flexibility managed to outperform their reference benchmarks strongly and to limit the impact of pronounced market drawdowns.

In September, we cut one of our Japanese exposures due to a risk management measure in view of the fund’s declining assets. For some portfolios, we replaced this position by a newly-approved long/short fund focused on US small and mid caps. This fund has a very limited net long exposure and has low levels of beta and correlation with the market. At a time when equity markets are very volatile, and dispersion is wide, this kind of strategy offers a differentiated source of performance and diversification within the portfolios.

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Newsletter | September 2022




Investment perspective

The positive sentiment observed in markets since mid-June ended in the middle of August. Equity markets were resilient to rising bond yields intially, but then gave back all of their gains to end the month much lower; the MSCI World Index in local currencies dropped by 3.6%, with European equities underperforming and EM ones holding up better. The rise of bond yields was steep, with European sovereign debt being the most negatively impacted; 2-year Bund yields climbed by 92bps to end August at 1.18%, with 10-year ones rising by 72bps. The size of these moves was reflected by the 4.9% monthly drop of the Euro Broad Investment-Grade Index, dragging it down to a year-to-date decline of 12.9%. The high correlation between bond and equity markets remains entrenched and the comments by Jerome Powell at Jackson Hole only reinforced this relationship. The month of August also saw the US dollar appreciate strongly, as investors turned to one of the only remaining safe haven assets.

Jerome Powell’s Jackson Hole speech was eagerly awaited by investors. The Fed chair spoke for less than ten minutes but that was long enough to trigger a significant fall of equity markets as the S&P 500 Index lost 3.4%. Powell emphasised the central bank’s resolve to hike interest rates to curb inflation. He said that the Fed “must keep at it until the job is done” and that this would bring “some pain to households and businesses”. He pushed back against the notion of raising rates and cutting them soon afterwards. Investors are also bracing themselves for a more hawkish European Central Bank. The ECB is widely expected to raise rates by a half percentage point at its next policy meeting on September 8, with some policymakers even pushing for a more aggressive move to raise rates by 0.75%.


Investment strategy

During our last investment committee, we decided to reduce our equity allocation to underweight. The strong summer rally of equities provided an opportunity to exit some of our positions at higher prices, with the objective to raise the level of cash and to contain some of the portfolios’ volatility. We have mostly, but not exclusively, acted on European positions as Europe remains the most fragile region. The energy crisis, inflation pressures and the increasing risk of a recession have led us to turn more cautious, especially as the recent rally was quickly losing momentum. The level of uncertainty on many issues remains high and, in certain cases, represents too much of a binary risk. The higher level of liquidity will provide more flexibility to rebuild positions if equity markets were to correct in the upcoming months.

Bond markets also still need to find an equilibrium level. The message sent by Jerome Powell means that yields are more likely to keep on rising and at risk of further hurting the prices of equities. As long as bond markets remain as volatile, it will be difficult for other asset classes to stabilise.



Portfolio Activity/ News

Following a good start, August ended up by being a negative month for the portfolios. With both equity and bond markets posting negative returns, there were only a limited number of positions ending August in positive territory. The best contributions were provided by frontiers markets’ equities, the metal mining fund, the trend-following CTA strategy, emerging markets bonds and equities, as well as high-yield bond funds. European Small Caps and other European equity funds, the global technology fund, and the European sovereign debt fund, due to its long duration, were the portfolios’ main detractors. For portfolios not denominated in USD, the US dollar exposure was a positive contributor.

Despite the negative performance observed in most markets in August, it was somewhat reassuring to note that emerging and frontier markets produced positive returns. At a time when it is challenging to find assets which are less correlated, the broad diversification within the portfolios enables to benefit from these different trends. The fact that Chinese authorities are attempting to stimulate their economy when developed markets are facing more restrictive conditions explains this contrast in terms of market performance.

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Newsletter | August 2022




Investment perspective

Following a painful month of June for both equity and bond markets, July looked much like a mirror month as both asset classes performed strongly. In fact, the rebound of markets had started in June already, when expectations relative to the Federal Reserve’s terminal fund rate and bond yields peaked. The decline of yields, combined with an overall reassuring reporting of 2Q earnings, helped equity markets to generate outsized gains, with the MSCI World Index in local currencies climbing by 7.9%. US equities outperformed, especially growth stocks, whereas emerging markets underperformed, largely due to the weakness of Chinese equities. The retreat of bond yields continued at a quick pace; 10-year Treasury yields dropped by 0.36% to end the month at 2.65%, with the equivalent Bund yields falling by 0.52% to 0.81%. Credit spreads also tightened significantly, whereas the US dollar’s appreciation came to a halt, at least temporarily, around the middle of the month.

With more than 75% of the S&P 500’s market cap having reported, earnings have beaten estimates by 4.7%, with 71% of companies topping projections. Earnings per share growth is on pace for 9.8%, assuming the current beat rate for the rest of the season. Even if the beat rate was a little lower than that of the previous quarters, companies’ results can be qualified as solid overall, and guidance has tended to be constructive. Investors reacted positively to the publication of the results of mega-caps such as Apple, Amazon, Alphabet and Microsoft, further boosting the ongoing rally of equity markets. The FED press conference following the July 26-27 FOMC meeting was another supportive factor for equities; Chair Jerome Powell suggested that US rates were near their neutral level so that it was an appropriate time for the Fed to move to a strategy of data dependency.


Investment strategy

In our recent mid-year review, we wrote “Our assessment is that a lot of negative news has already been priced in, and market sentiment has become overly depressed”. While we will not pretend to have been anticipating such a strong rally of risky assets in July, it just goes to show how fickle markets have become, and how quickly they can turn around. It also shows that the cutting of exposures when market sentiment is at extreme lows can prove to be very costly. Historical data suggests that equity returns following bear markets, defined as a 20% drop, tend to be well above average over the next two years. That largely explains why we invest over the long term and do not attempt to time the market. We continue to believe that a well-diversified portfolio is the best way to navigate current market conditions, hence our positioning.

Like many we have been astounded by the speed at which some market trends have shifted this year. This reflects an extreme level of uncertainty which has resulted in prices overshooting and undershooting massively. It is still too early to believe we have reached a point of equilibrium following these violent swings so further volatility is to be expected in the months ahead.



Portfolio Activity/ News

July was a very positive month for the portfolios, with the vast majority of strategies producing monthly gains. The best contributions were provided by the global technology and multi-thematic funds, European Small Caps, US Value and US Growth, the Medtech & Services fund, as well as European and Japanese equities. The fixed-income asset class also contributed positively, thanks to declining risk-free bond yields and tighter credit spreads. Chinese equities, the trend-following strategy and L/S equities were the portfolios’ main detractors; the negative return recorded by the trend-following CTA strategy in July was to be expected considering the inversion of some well-entrenched trends. For non-USD denominated portfolios, the US dollar exposure was also a contributor.

In July we cut one of our more growth-orientated strategies in favour of more defensive ones. We effectively increased the allocation to the real assets and to the stable equity strategies. The objective of these moves is to reduce some of the portfolio’s volatility and to increase the exposure to less cyclical businesses and to assets offering a higher level of protection against inflation.

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Perspectivas de inversión 2022 |  Repaso y previsión semestral 

Resumen de nuestras previsiones

La economía sufre una fuerte desaceleración y hay poca visibilidad

La economía mundial se está ralentizando y se han revisado muy a la baja las previsiones de crecimiento del PIB anunciadas a principios de año. La guerra en Ucrania, los confinamientos en China, los trastornos en las cadenas de suministro y las políticas monetarias restrictivas han supuesto un duro golpe para la actividad económica y se ha perdido la esperanza de una prolongación del fuerte repunte post- COVID. La invasión de Rusia a Ucrania ha empeorado las dificultades sufridas desde la pandemia, como los atascos en las cadenas de suministro y las fuertes subidas del precio de las materias primas. Las presiones inflacionistas también han resultado ser mucho más persistentes de lo que previeron los bancos centrales. El Banco Mundial espera ahora que el crecimiento mundial se quede en el 2,9% durante 2022, frente a la proyección del 4,1% anunciada hace seis meses. En lo que llevamos de año, la economía ha tenido que afrontar más turbulencias de lo previsto y los riesgos de recesión han seguido aumentando.

Las condiciones financieras seguirán endureciéndose

En los últimos tiempos los bancos centrales han dado un giro radical en sus posturas. Los mercados anticipan ahora el ciclo de endurecimiento más agresivo y sincronizado desde la era Volcker de principios de los años ochenta. Los bancos centrales han tardado en admitir lo equivocados que estaban en sus previsiones para la inflación y ahora intentan recuperarse rápidamente de su error. El rendimiento de la deuda pública de los G-7 ha crecido a un ritmo inaudito. Bien es cierto que se esperaba una mejora del rendimiento, pero la rapidez con que los bancos centrales, especialmente la Reserva Federal americana, cambiaron sus políticas monetarias, ha conmocionado los mercados. En enero, los mercados esperaban para 2022 tres subidas de los tipos de interés del 0,25% hasta llegar al 0,75% por parte de la Reserva Federal americana. Un mes más tarde se habían descontado cinco subidas, hasta el 1,25%, y ya en marzo la cifra esperada llegaba a nada menos que un 2,5%! Las expectativas actuales son que el tipo de interés americano cierre 2022 en el 3,5% y que llegue al 4% en 2023. También han aumentado significativamente las expectativas de subidas de los tipos del Banco Central Europeo. En enero no se esperaba ninguna subida y a la fecha de estas perspectivas ya se esperaba que subieran al 1% al cierre de 2022.

Es muy probable que la segunda mitad del año siga siendo volátil para los mercados financieros

La primera mitad de 2022 ha sido brutal para los mercados de acciones y los mercados de bonos mundiales. Pese a los beneficios empresariales tan solidos del primer trimestre y, por ahora, una previsión generalmente optimista para los beneficios futuros, la renta variable ha caído significadamente al optar los principales bancos centrales por una postura cada vez más agresiva. La combinación de beneficios más elevados y precios de acciones más bajos implica que la revisión a la baja de las valoraciones, que llevamos viendo desde finales de 2020, ha proseguido en 2022. Los rendimientos de la deuda soberana han crecido rápidamente y los spreads de créditos (diferenciales de crédito) se han ampliado de manera notable. Los principales índices de bonos han bajado en torno a un 15%, una caída espeluznante para esta clase de activos. Los inversores han tenido que ir ajustando constantemente sus expectativas con respecto a las políticas de los principales bancos centrales, lo que ha desencadenado una volatilidad descomunal. Dado el alto nivel de incertidumbre provocado por las turbulencias económicas y geopolíticas, creemos que los mercados financieros seguirán siendo volátiles en los próximos meses.

El posicionamiento de las carteras se ha vuelto más defensivo

El posicionamiento de nuestras carteras es ahora más defensivo, con una asignación neutral en la renta variable, sobreponderada las estrategias alternativas e infra ponderada con corta duración en renta fija. Para las carteras que no están denominadas en USD, aumentamos también la posición en el dólar americano como medida defensiva. Nuestra exposición a la renta variable sigue estando bien diversificada y hemos sustituido algunas estrategias de crecimiento de renta variable por otras más defensivas, lo que ha resultado ser un acierto por el momento. Nuestra valoración es que las cotizaciones ya reflejan muchas de las malas noticias y el sentimiento del mercado es exageradamente pesimista. Ante las condiciones actuales de los mercados, es probable que las estrategias más defensivas sigan ofreciendo un rendimiento superior, como la inversión en empresas menos cíclicas, los activos inmobiliarios, el sector de la salud, la renta variable de valor y las empresas de calidad. También nos gusta la descorrelación que ofrece la renta variable de los mercados “frontier”, sobre todo porque sus valoraciones siguen siendo muy atractivas. En la próxima sección del documento evaluaremos el entorno macroeconómico y la situación económica predominante resaltando los indicadores claves más importantes que observamos. Tras una breve descripción general de los resultados del primer semestre de las diferentes clases de activos, expondremos nuestra previsión de mercado y asignación de activos.




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Newsletter | June 2022




Investment perspective

May was an archetypal month of two halves for most asset classes. Global equities extended their early-year decline initially before staging a spectacular rebound. This helped the main indices to record flat monthly performances, even if growth and small cap indices were not able to make up all of their early-month losses. The yields of US Treasuries continued to rise fast until May 6 when they began to climb down from a peak level of 3.2% to end the month at 2.84%. It took longer for credit spreads to start contracting but, then again, the movement was swift, for US high yield bonds in particular. The US dollar ended May on a much weaker note after reaching a multi-year high. The trend that continued to be persistent was the appreciation of the prices of most commodities. With the EU’s agreement of new sanctions against Russia in the form of a partial oil embargo, oil prices climbed by close to 10% in May; low expectations for any further increase of OPEC production and the anticipation of a recovery in demand in China also contributed to this rise.

The high level of uncertainty on many issues continues to weigh on markets and on market sentiment. This has led certain well-followed indicators such as the Fear & Greed Index and the AAII Bull/Bear Index to drop to extremely negative readings. From a contrarian viewpoint, such depressed levels often precede equity rebounds and this proved to effectively be the case in May. Amidst all the doom and gloom hovering over the markets, the corporate sector appears to be a brighter spot. This has been reflected by the significant insider buying of shares by companies’ directors as well as an increase of equity buybacks from record levels observed the previous years. US business sentiment remains optimistic regarding demand even if supply chain and pricing issues remain the biggest concerns.


Investment strategy

Some of the latest market movements could be signalling that markets have already priced in a lot of negative news and maybe become too bearish. When looking at historical average stock drawdowns for US equities, the current trough has gone beyond the average non-recession selloff, according to JPMorgan’s quant team. When compared to the average selloffs during recessions, the current drawdown represents around 75% of prior recession bottoms. Were a recession to be avoided, the current market positioning might well prove to be overly defensive. This is reflected by the near record premium of US defensive sectors versus cyclicals. Rather than adopting such a lopsided defensive position, our allocation to equities continues to be well diversified across investment styles, regions, sectors, and market caps.

The past month saw a pause in the rise of US bond yields as well as a decline from peak expectations relative to the end-2022 implied Fed Fund rate. Were these expectations to be anchored around the current levels, this could provide some support for markets.



Portfolio Activity/ News

May was a negative month for the portfolios. Even if many global equity indices recorded flat monthly performances, several of our growth-orientated strategies finished in negative territory. Japanese equities, the multi-thematic fund, US small caps and equities of frontier markets were amongst the portfolios’ main detractors. Positive contributions were provided by the European and US Value funds, Chinese equities, the L/S equity strategy, as well as the global technology fund. Most of the bond positions ended with limited losses as US rates started to stabilize and credit spreads contracted towards the end of May. For non-USD denominated portfolios, the US dollar exposure was a detractor in view of the decline of the US currency from its May multi-year high.

We recently attended an event where many fund managers presented their strategies. Whereas equity managers tended to remain unsure about the next move in equity markets, bond managers proved to be more optimistic. Following extensive spread widening, the consensus was that the market now offers decent opportunities in view of much higher carry and solid fundamentals. They also highlighted the fact that refinancing needs remain very low as most companies have taken advantage of record low yields the past years to boost their balance sheets.

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Newsletter | May 2022




Investment perspective

The month of April was a brutal one for financial markets. In an environment where bond yields continued to rise at a fast pace, and the appreciation of the US dollar accelerated, equity and bond markets both ended the month much lower. The MSCI World Index in local currencies plunged by 7%, mainly due to the weak performance of US equities. The Bloomberg Global-Aggregate Total Return Index, a broad bond index, lost 5.5% and recorded its biggest monthly drop since its inception in 1990. 10-year Treasury yields rose by 60bps to end April at 2.94%, and Bund yields with a similar maturity moved up to 0.94%, an increase of 39bps; credit and emerging market debt were also impacted by a widening of spreads. The overall strength of the US dollar was reflected by a 4.7% depreciation of the EUR/USD parity to 1.055, a level last observed more than five years ago.

The main drivers of markets in April were the increasing hawkishness of the Federal Reserve, as well the reporting of first quarter earnings. Markets are now pricing in a 50bps rate hike in May, with same-size hikes also likely to be announced at the following meetings. With more than 80% of the S&P 500’s market cap having reported, earnings are beating estimates by 6.5%, with 77% of companies topping projections. These solid results have not prevented US equities from getting battered during the past month. Some of the darlings of the past years, which contributed largely to the strong outperformance of US equities relative to other regions, have been experiencing a significant derating. Investors have punished high-growth companies such as Netflix which saw subscribers fall for the first time in a decade. Soft guidance from Amazon, a supply constraints issue for Apple and disappointing earnings from Alphabet are just some of the reasons for the poor performance of these companies’ stocks in April.


Investment strategy

We are maintaining the current allocation of our portfolios amidst very depressed market sentiment. The Fear & Greed Index is in fear territory, whereas the AAII bull/bear Index is showing the highest level of pessimism since March 2009. Investors are facing massive uncertainty on a number of issues, and markets have become over reactive and prone to huge swings. At the time of writing the Federal Reserve has just hiked by 50bps, as fully expected, but US equities rallied by 3% after Jerome Powell ruled out the possibility of a 75bps hike at a forthcoming meeting. This move appears overdone but reflects the current level of noise across the markets and we prefer to look further ahead and not attempt to trade the market daily.The month of April was another very tough month for fixed-income assets, but we might be approaching a point where the timing looks more favourable for the asset class. A lot of adjustment in risk-free rates has already taken place in view of the expected tightening of central banks, and the outlook for credit remains supportive.



Portfolio Activity/ News

April was a negative month for the portfolios. With both the equity and fixed-income asset classes recording monthly losses, it proved to be a very difficult market environment. The main detractors were the multi-thematic growth fund, US Small Caps, the technology fund, Japanese and Chinese equities, and European Small Caps. The recently added global equity fund exposed to companies with stable returns was resilient as were some emerging market exposures. In the fixed-income asset class, the losses of our exposures were generally less than those of their reference benchmarks, even if the fund with longer duration was obviously badly hit by fast-rising rates.

On a more optimistic note, alternative strategies have continued to outperform and to fulfill their diversification role within the portfolios. Several hedge funds provided positive contributions, in particular the trend-following CTA strategy, thanks to its significant short exposure to rates. For non-USD denominated portfolios, the appreciation of the US dollar also contributed positively to the performance.

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Newsletter | April 2022



Investment perspective

The month of March was characterised by two distinct periods for financial markets as early-month weakness was followed by a strong rebound of risk assets. The MSCI World in local currencies gained 2.9%, with the S&P 500 ending 3.6% higher, whereas the Euro Stoxx 50 dropped by only 0.6% after recovering most of its early-month losses. This performance of equities was quite impressive considering the dramatic events in Ukraine, and also in view of the significant rise of bond yields. An increasingly hawkish Fed triggered a 51bps rise of 10-year Treasury yields, with 10-year Bund yields also jumping by 41bps. In FX markets, the US dollar appreciated while the Japanese yen plunged by 5.5% vs. the USD, mainly as a result of the diverging monetary policies between the Bank of Japan and the Federal Reserve. It was another strong month for commodity prices, even if those of energy and gold ended the month well below early-March peak levels. Gold spiked to $2’050 per ounce on March 8, before declining significantly to finish the month at a level of $1’937 per ounce.

Since the beginning of the year, bond markets have had a rough ride and the drawdown of bond indices has been severe. This has been firstly due to the impact of the Federal Reserve’s very hawkish shift towards both higher rates and a faster pace of these hikes, and also the upcoming contraction of the central bank’s balance sheet. Markets are now pricing in a 50bps rate hike at the May’s FOMC meeting, with other 50bps hikes also appearing as likely. Corporate credit markets have also been hurt by significant spread widening, whereas positions in Russian and Ukrainian debt has severely hurt investors exposed to issuers from these countries. The first-quarter performances of the main bond indices range from -5% to -10%, meaning that they have more or less been in line with the performances of equity indices.


Investment strategy

We are pleased to report that our end-February decision not to cut equity positions at the onset of the war in Ukraine has been vindicated in view of their strong recovery since early March. Our assumption was that the war, as dramatic as any conflict always is, would have only a limited and temporary effect on markets, as often observed historically. Our equity allocation has recently been reduced and, were equities to record further gains, we intend to continue moving their exposure towards a neutral positioning.

The fixed-income asset class has had a challenging start to the year, due to fast-rising rates and wider credit spreads. As a reminder, our allocation to the asset class is underweight, in particular towards investment-grade, and the duration is low overall. Last year’s gradual shift towards more market-neutral strategies such as event-driven or long/short credit has been very helpful this year. These strategies have been much more resilient and much less volatile than most long-only fixed-income strategies.



Portfolio Activity/ News

March was a positive month for the portfolios. There was a significant amount of dispersion between the performances of the different funds. Most fixed-income exposures posted negative returns whereas the majority of equity funds ended the month with gains. The best contributions were provided by the metal mining fund, the trend-following CTA strategy, the real assets fund, and the recently added global equity fund. The main detractors were the Chinese equity fund, one of the high yield strategies, as well as long duration bond funds. For non-USD denominated portfolios, the appreciation of the dollar also contributed to the positive performance.

In March, we trimmed some of the positions having outperformed and thus raised the portfolios’ level of cash. We took advantage of the strong rebound of equity markets from their early-March lows to carry out these transactions. We also boosted the exposure to the US dollar and have hence reduced its underweight compared to the reference index. For the balanced portfolios which are not denominated in dollars, the allocation has increased from 10% to 15%.

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Newsletter | March 2022



Investment perspective

It is with a heavy heart that we write this newsletter and our thoughts go out to all the victims of the war in Ukraine. In face of such a human tragedy, to comment on financial markets feels like a somewhat futile exercise but we remain committed to our task.

At the beginning of February, markets continued to price in a higher number of rate hikes by the Federal Reserve and expectations for a rise of rates from the ECB also rose significantly. Equity markets proved to be quite resilient, nevertheless, helped by the reporting of solid earnings generally; there were also some big disappointments, however, from companies including Meta Platforms (ex-Facebook) and Paypal. The second half of the month was mainly driven by the rising geopolitical tensions on the Ukrainian border, and then by the worst case scenario, when Russian forces started to invade Ukraine on February 24th. While European equities dropped steeply that day, as to be expected, US equities ended much higher as they dramatically recovered from a very weak opening. For the whole month, the S&P 500 dropped by 3.1% and the Euro Stoxx 50 by 6%. Big swings were also observed in the bond markets, as an initial rise of long term yields was then mostly erased. The yields of 10-year Treasuries and Bunds rose from 1.78% and 0.01% to 2.05% and 0.32% respectively, before ending February at 1.83% and 0.13%. In the current context, commodity prices have continued to rise, with energy, industrial and precious metals, and grains appreciating strongly. The US dollar ended the month higher, logically, as investors seeked refuge in the greenback.

Investment strategy

The dramatic events in Ukraine have added to the challenges that financial markets had already been facing. Historically, such events had relatively limited and temporary effects on the markets. This seems to be confirmed by their reaction, so far, since the beginning of the Russian invasion. With the obvious exception of Russian assets, European ones have been the worst impacted, as to be expected, but some markets are in positive territory since February 23rd, with others recording limited losses. Our model portfolio’s exposure to European equities has been underweight for some time, essentially due to an overweight towards emerging markets. This explains why we have not cut our allocation to Europe and believe that the broad diversification of the portfolios is well adapted to the current environment. Frequent and sudden rotations between regions, styles, sectors, and market capitalisations should continue to take place at a very fast pace and it is illusory to attempt to constantly be in sync with these shifts.


Portfolio Activity/ News

February was a negative month for the portfolios. As in the previous month, both bond and equity markets were weaker due to rising yields, wider credit spreads and deteriorating market sentiment. European Small Caps and Value, the global technology fund, and emerging market debt were the main detractors. Some positive contributions were provided by the exposure to gold, the healthcare fund and the metal mining fund, which benefited from rising commodity prices. In the alternative space, the long/short credit funds, the Event- Driven strategy, the CTA and Global Macro strategies were resilient and played their part as portfolio diversifiers.

In February, we made some switches in the model portfolios. The emerging markets’ growth equity strategy was replaced by an Asia ex-Japan fund with a value approach. The purpose is to benefit from extremely low valuations for the fund’s companies and to reduce some of the overlap with the China equity fund. A global fund with a focus on growth was also replaced by another global equity fund exposed to “boring” businesses with stable returns. The objective, in both cases, was to reduce some portfolio volatility and to rebalance the allocations to growth and value funds.

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Newsletter | February 2022



Investment perspective

Financial markets have got off to a very volatile start in 2022 largely due to the increasingly hawkish tone of the Federal Reserve, but also in view of a lack of visibility on several key issues. The US equity markets underperformed as growth stocks were badly hit by the prospect of rising interest rates. European and UK equities proved more resilient as they benefited from a rotation into value stocks, more highly represented in their indices. Significant rises of bond yields were also observed with short-term US ones the most impacted by the anticipation of a higher number of interest rate rate hikes; 2-year Treasury yields thus rose from 0.73% to 1.16%. Even if Eurozone yields also increased, the widening of the interest rate differential between Treasuries and Bunds underpinned the US dollar. Finally, the commodity complex appreciated strongly, with the biggest moves recorded by energy and industrial metals.

The most likely path of the Federal Reserve’s monetary policy has been reassessed continuously by investors since the beginning of the year. The hawkish pivot of the central bank in December moved to a new level, making markets very choppy on concerns that the Fed mighty tighten policy even more than expected. The mention in January of an upcomig reduction of the Fed’s balance sheet took investors by surprise, and a first rate hike in March now appears as a done deal. The following steps are less predictable even though markets are now pricing in five hikes in 2022 compared to three at the beginning of the year. Notwithstanding the prospect of higher interest rates, investors remain confused by the level of uncertainty that the central bank, and Powell in particular, is predicting. Added to the uncertainy over inflation, supply chains, the pandemic and the situation on the Ukrainian border, it is not surprising that markets were badly shaken during the past month.

Investment strategy

Following a solid end to 2021 for financial markets, January has provided a stark reminder of how quickly conditions can change. The speed at which the Federal Reserve is looking to normalize its monetary policy is destabilizing the markets and it will likely take some time for an equilibrium to be found. Our base case scenario still favours equities as being the main drivers of portfolio performance, and we are prepared to tolerate higher volatility in the near term in view of our longer-term outlook. Economic growth should remain above its long-term potential and corporate earnings are expected to grow further, even if at a slower pace. From a historical perspective, the beginning of a tightening cycle by the Fed has not prevented positive equity returns as long as the rise of rates is gradual, and a recession is not in sight.

Markets are likely to be much more challenged in the year ahead. Less supportive monetary policies, a decelerating trend of earnings growth, elevated economic and pandemic-related uncertainties are the main headwinds they will have to face. These factors largely explain why we anticipate more moderate portfolio returns in 2022.


Portfolio Activity/ News

January was a disappointing month for the portfolios. With both bond and equity markets dropping simultaneously, the majority of funds detracted from the performance, as to be expected. US Small Caps, the Multi-thematic fund, European Small Caps, the global technology fund and one of the Japanese funds were the main detractors. On the positive side, some positive contributions were provided by the European Value fund, long/short equities and the UK Value fund. For non-USD denominated portfolios, the appreciation of the dollar was also a positive contributor. In the alternative space, the long/short credit funds and the Event-Driven strategy had limited drawdowns, whereas the CTA and Global Macro strategies fared less well. The selection of active managers is at the core of our invest-ment approach, with the objective of generating significant alpha relative to benchmarks over the long term. There will be periods when we must accept some underperformance relative to a more passive approach. We are currently going through such a period and will be looking for our active funds to catch up their gap and re-establish their long-lasting track-record.

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