Stand: 31.10.2022
After the strong market correction in September due to aggressive central banks trying to bring down sticky high inflation, global equity markets recovered in October. Despite geopolitical risks being at the forefront of investors minds, investors found some reasons for optimism. Global supply chain constraints continued to ease and European governments took further steps to dampen the impact of the energy crisis and mitigate the risks of a high recession, while the combination of continuing high inflation and solid labour markets continued to support hawkish central banks. While the economic outlook continues to deteriorate, the equity market recovery since the end of September now suggests that a significant amount of bad news is already priced in. Against this uncertain global economic backdrop, the MSCI World All Countries Index© was more than 6% higher over the month. US equity markets rose the most of the developed markets, with the S&P 500© increasing 8.1%, while in the Europe, the Stoxx Europe 600© gained 6.4%. Conversely, emerging markets dropped more than 3% as Chinese equities came under pressure. The industrial sector gained the most over the past month, followed by financials, healthcare and, to a lesser extent, information technology. Consumer discretionary was the biggest underperformer, followed by materials and the more defensive consumer staples sector. After several weeks of decline, markets recovered some ground in October as global supply chain issues continued to ease and European governments took further support measures to mitigate the potential of harsh recession. In the US, the Fed confirmed its hawkish stance to contain elevated inflation. As we are in the middle of earnings season, we have seen around three-quarters of companies delivering better-than-expected results. On this backdrop, the MSCI AC World NR© posted a healthy gain of 6.04%** for the month of October. In October, the fund returned +3.78%*, underperforming its benchmark by 226bp. Further commitment from the central bank to tackle inflation has led to further pain for long duration names we hold in the portfolio. Year-to-date, the fund underperforms its benchmark by 718bp, with a negative absolute performance of -28.32%*. On a portfolio level, all sectors made gains, although dispersion was high. Energy stocks were broadly stronger following especially robust earnings. Some retailers were notably weaker, with investors anticipating pressure on consumer spending performance. Being underweight, the Consumer Discretionary sector and Consumer Staples sector both contributed the most to the fund s performance. Last month s worst absolute performers were ITM POWER PLC (Industrials) and XINYI ENERGY HOLDINGS LTD (Utilities), which returned -18.5% and -17.4% respectively. With a negative contribution of 34bp, ADVANCED DRAINAGE SYSTEMS IN (Industrials) was the main detractor. Advanced Drainage Systems experienced some selling pressure going into Q3 earnings as it has done remarkably well in the current environment, on QoQ robust fundamental performance. The best contributor to excess return was MASTEC INC (Industrials), contributing by 36bp. DARLING INGREDIENTS INC (Consumer Staples) as well as APTIV PLC (Consumer Discretionary) were also solid contributors, contributing with 23bp and 21bp respectively. As the last months worst performer on execution, concerns in its clean energy segment and a lag in repricing of the telecoms segment dragging on margins, Mastec recovered nicely in October with investors being slightly more confident on its margin recovery heading into Q4 of the year. In September, we increased the position of ORSTED (Utilities), from 1.2% to 1.9%.