Getting ready for QE

BY WILLEM VINKE

Monthly Fund Commentary
26 Mar 2015

BY WILLEM VINKE

Both equity and bond markets continued to react positively to the anticipated rise in liquidity and asset purchases of the ECB’s QE programme and to the improving economic news flow in Europe. European markets showed little concern over Greece’s increased rhetoric against the Troika and at the eleventh hour a four month-extension of the existing bailout agreement was granted by the Euro group of finance ministers. 

Globally, the corporate earnings reporting season no real surprises in the US and European earnings coming in ahead of previously downwardly revised expectations, whilst growth forecasts continue to be brought down in emerging markets and China. The US dollar continued to rise due to the divergent paths of the Fed and the ECB.

The Fund recorded a strong positive gain for the month; however underperforming its benchmark index by 146 basis points. The analysis suggest that much of the inflows were into passive instruments. This means the whole market rises indiscriminately and stock-pickers are not rewarded for their work.

The portfolio unusually saw three names being added to reflect the ongoing improvement in growth expectations for some of the European economies. The new names were Bolsas y Mercados Espanoles expecting increased trading volumes and listings), SAP SE (new cloud applications and positive Euro translation effects) and Grandvision NV increased consumer demand reflected in their new stores and l-f-l (like for like) sales plus lower input costs), while Indivior was exited.

The coming months will no doubt provide its share of surprises with the impending UK election, another round of Greek debt negotiations and the continued Russian undermining of stability but within Europe the increased liquidity, abnormally low interest rates and an improving economic backdrop, in the short term the environment seems benign. In the US, the Investment Adviser continues to be cautious of the high expectations regarding economic growth and the translation effects of the strong dollar.

The views and statements contained herein are those of Lofoten Asset Management in their capacity as Investment Adviser to the Fund as of 20/03/15 and are based on internal research and modelling.