BY PAOLO MARONGIU
The month of November showed a misalignment in performance of the main equity markets: the global and American indices posted positive performances (MSCI World (+1.99%) and S&P 500 (+2.81%) respectively), while the European markets declined (MSCI Europe (-2.24%) and EuroStoxx50 (-2.83%) respectively).
The sell off in the European equity market was attributable to a general profit taking in all sectors, apart from Real Estate (+1.11%), leading to a maximum drawdown of -3.67% of the MSCI Europe Index (MXEU) compared to the beginning of the month. The sell off was concentrated in the first part of November, while the second part of the month was characterised by a lack of direction, which prohibited the market from recovering all losses
Despite the additional market sell off, the European equity market is positive year to date, with the MSCI Europe Index showing a good price return at the end of November (+6.50%), with its closing value still near its yearly high posted in May (around 134). During the month, the Euro rebounded and reached 1.19 against the Dollar, increasing the pressure on the latter. The Dollar Index fell to the 93 level.
Throughout the month, the American stock market was much stronger than the European market and posted new historical highs in local currency. The relative strength of the S&P500 Index was large, with the market getting close to 2650, indicating again that global markets outperformed European markets.
In November, the Strategic Beta Flex Fund lost 0.30%, attributable to the negative performance of the European equity market. Overall, the Fund was well positioned during the early part of the month, showing a conservative approach (with the hedging position close to 81%). After the intra-month maximum drawdown, the hedging position was slightly reduced in an attempt to catch the potential upside of the market, reducing previous losses.
Throughout the month, the long leg of the portfolio performed in line with its benchmark. Generally, it was however hard to generate alpha (since the summer, the long leg of the portfolio has been able to outperform its benchmark).
From a statistical point of view the last quarter of the year is usually a sweet spot for equity markets, especially when September and October are up months. The volatility spikes usually tend to be limited when the market trends above its long term moving average.
The views and statements contained herein are those of Sofia SGR in their capacity as Investment Adviser to the Fund as of 13/12/2017 and are based on internal research and modelling.