Income Generation / Total Return
7% p.a., net of fees
30 April 2020
Equity markets started 2024 on a positive note with US and EZ equities returning +1.7% and +3.0% YTD, respectively. EM equities (China) lagged substantially with -4.5% total return YTD. The Goldilocks scenario in the US returned to centre stage in January, supporting the solid start of equity markets this year. However, the narrow leadership in last month’s performance indicates a change of driver in the rally that started late October. DM large-cap growth stocks led the way once again, while EM and small caps gave back part of their strong gains in Q4. The laggards in 2023 are back to lagging and their outperformance late 2023 didn’t carry over into 2024. As the macro environment is gradually proving to be in sharp contrast with investors’ rate cuts expectations for H1 2024, the main risk remains a disappointment on both sides of the Goldilocks scenario, i.e. a no landing scenario and more hawkish DM Central Banks delaying their widely expected rate cut cycles. In January, leading indicators finally stabilised in DM economies while employment markets continued to show impressive resilience. In this context, the decline in inflation should now lose momentum and the risk of seeing long bond yields spiking again has increased. The Fed’s guidance at the January FOMC might pave the way for a durable hawkish stance from the FOMC. As a result, both macro news-flow and monetary conditions are likely to be less supportive in the coming months. Finally, despite recent downgrades in corporate earnings forecasts, the actual +8.5% EPS growth expected for 2024 (MSCI World) looks at risk given the downside pressures in the producer prices across DM economies. In conclusion, the actual 20x S&P forward P/E ratio looks stretched and further DM equity upside extension in Q1 beyond current technical resistances is unlikely, given the recent macro and policy drivers fading away.
The Fund was up +0.6% (A, USD) in January, slightly behind its annual objective. The large cash surplus resulting from notes auto-called late December was reinvested throughout January, creating some income dilution. After adding the MSCI EM as underlying to the income notes, thematic single-stocks selections were also added as underlying (max. 5% allocation). As of 31/01, the income notes downside protection was +19.6%, with 9.3-month average maturity. The Fund’s running yield was at +8.9% p.a. (USD, gross), which should reach +9.5% once the remaining cash is reinvested shortly.