Green shoots spotted

BY WILLEM VINKE

Monthly Fund Commentary
20 Apr 2015

BY WILLEM VINKE

The period of cheap oil and supportive central banks continues. In Europe, green shoots continue to be spotted; strong European new car registrations, March PMI rising to a 10M high of 51.9, the fifth rise in the German IFO numbers, these signs of growth and the beginning of the ECB’s QE continues to drive European markets. There seems to be a tangible difference between the reform countries versus the refuseniks where Spain, Ireland and Portugal are seeing growth rebound while it lags in France and Italy.  

In the US, the Fed continues to signal to markets it will keep interest rates supportive of the US recovery whilst keeping a close eye on wage inflation as the number of employed continues to expand and household debt falls to levels only seen 10 years ago. But not all the US data points are positive; retail sales dropped for the third month in a row and the US dollar strength continues to drag on US corporate earnings expectations. These downward revisions have ensured that the US stock markets were flat for the month.

In the rest of the world, dollar strength continues to takes its toll. Emerging Debt becomes harder to service as their economies splutter along. Chinese growth continues to slow as its economy matures, the latest estimates for 2016 GDP is 6.9% versus 7.3% 4Q14. In Japan the effect of the artificial stimulus has faded and future growth hinges on reforms. 

The MSCI Europe Total Return Index was up 1.66% during March, the Fund performed slightly better with a rise of 1.99%. The portfolio performance came from a broad spectrum of holdings with European consumer spending and the wealth affect being an underlying theme. The stocks which provided the bulk of the performance were Fagron, Grandvision, Amadeus and UBS. Autotrader was added in March as a play on consumer digital spending. 

As we move into the second quarter, investors will closely monitor European growth, speculating if the recovery will be broad and sustainable, potentially making it a perfect environment for mergers and acquisitions given the continuing low cost of borrowing.

The views and statements contained herein are those of Lofoten Asset Management in their capacity as Investment Adviser to the Fund as of 15/04/15 and are based on internal research and modelling.