By Eric Vanraes and Pascal Perrone
In September, the European Central Bank (ECB) cut interest rates and announced additional measures including a purchase program of asset-backed securities (ABS) and a larger program of quantitative easing if needed. The risk of deflation is a growing concern, which may force the ECB to dramatically increase the size of its balance sheet. In the US, economic conditions continue to send a mixed picture, where GDP grew by 4.6 in the second quarter, car sales recovered to their pre-crisis level and Federal Reserve’s “Beige Book” of economic conditions indicated that the economy was moving at a modest-to-moderate pace.
While some of the Fund’s names performed well (e.g. Actavis), markets remain driven by macro events and by the lack of investment alternatives.
The U.S. Dollar increased its value by 3% against a basket of major currencies, pushing down commodities including, notably, both oil and gold. While this did not have a direct impact on the Fund, the ongoing stark underperformance of small and midcap stocks generally pressured some of the Fund’s names and raised questions among some market participants as to whether these divergences were indicative of market fatigue.
All in all, while some of the Fund’s names performed well (e.g. Actavis), markets remain driven by macro events and by the lack of investment alternatives. As previously mentioned, valuations remain as undifferentiated as they have been for years, emblematic of the environment in place this year. As always, the Investment Adviser remains focused on the investment process and on assessing the opportunities as they arise in the market.
Commentary provided by Banque Eric Sturdza in their capacity as Investment Advisers to the Fund as of 09 October 2014