US equities resumed their rally by breaking up above their July peak, immediately after the US presidential election. By contrast, European and Asian equities either stalled or recorded losses in November. On a YTD basis, US equities extended their lead, outperforming European peers by c.20%. Both the uncontested election of D. Trump and the Republican sweep proved to be strong catalysts that investors were waiting for to turn risk-on again, on the back of an upcoming pro-growth agenda, combining tax cuts and deregulation. Also, Trump’s plan of new tariffs on imports to the US is only interpreted by equity investors as a negotiating tactic that will not ultimately come into force. Therefore, the inflation risk inherent to this initiative looks unlikely to turn into a drag to consumer demand. However, the flip side of this optimistic scenario remains the significant surge in US Treasury yields since mid-September, fuelled by bond investors’ concerns about the inflation risk, which could force the Fed to halt its easing policy cycle sooner than expected. Powell has already emphasised the Fed’s independence in setting interest rates, meaning that a clash with D. Trump looks likely. Altering the Fed’s credibility and the USD strength is a dangerous option at a time when the US government funding requirements continue to grow, relying on heavy US Treasury purchases by foreigners more than ever. It is not surprising that the threat of tariffs targeting specific countries willing to trade in an alternative currency to the USD has already been formulated by Trump. By contrast, the EU’s two major member states are embroiled in an unwelcomed period of political instability, while the Ukrainian conflict has escalated again. The region’s economic outlook has deteriorated quickly, explaining the EZ equity market outflows, despite a more accommodative monetary policy. The leadership of US equities is not ready to fade away!

The Fund was up +1.1% (A, USD) in November reaching +7.9% annualized YTD return, catching up with its annual objective of short-term rate + 3%. Due to weak equity performance in Europe throughout November, the portfolio turnover was low. As a result, the portfolio yield remained strong and few reinvestments were made with high yields due to higher volatilities pre-election and political uncertainty in Europe. As of 30/11, the Fund’s running yield was at +10.0% p.a. (USD, gross), with +17.0% downside protection of the income notes allocation and 4.4-month average maturity.