The macro news-flow in February proved to be more challenging than expected for the soft-landing scenario, central to investor forecasts. US inflation reports surprised on the upside, in sharp contrast with the deceleration observed in consumer prices throughout H2 2023. More importantly, core-services inflation reaccelerated above +5% y/y, which will force the Fed to push back on market expectations of monetary policy easing starting as early as March. At the same time, US and EZ business surveys picked up, moderately raising the odds of a no-landing scenario. As a result, US long bond yields climbed again significantly, while the probability of an initial Fed rate cut in March dropped to almost zero. Although this combination of moderate growth and sustained inflation might prove to be only temporary, it should have triggered some form of downside adjustment of equity market valuations, as their strong year-end rally was driven entirely by multiple expansion on the back of upcoming DM Central Banks easing cycles. Instead, equity investors focused on the US and EZ earnings seasons, with a particular attention to AI adoption and its impact on future earnings of companies. Overall, Q4 2023 corporate earnings did not considerably surprise on the upside, despite the downgraded forecasts. US earnings ex-tech remained slightly negative in the past 12 months, like Eurozone earnings ex-energy. However, companies proving to be early AI adopters and already providing estimates of the future impact on their margins did show a sustained outperformance. Concentration of indices performance should stay high as it looks like the bottom-up AI input will replace top-down driver as the catalyst for future market upside.

The Fund was up +0.5% (A, USD) in February, again slightly below its objective. The high turnover in the portfolio, as well as the prolonged drop in equity volatilities, diluted the income generation. After adding the MSCI EM (max. 10% allocation) and few thematic stocks selections (max. 5% allocation) as underlying to income notes, the Nikkei index was also selected to replace the FTSE in some DM equity baskets, helping maintaining a higher income in the Fund. As of 29/02, the income notes downside protection was +19.8%, with 5.9-month average maturity. The Fund’s running yield was at +9.2% p.a. (USD, gross).