VAM Managed Funds (Lux) Commentaries

February 2020 (click here to download)

VAM DRIEHAUS FUND

As proxies for larger, broad equity exposures, note that the MSCI All Country World Index was down -8.08% and the S&P 500 was down -8.23%. On a relative basis, the VAM Driehaus Fund’s return benefitted from its exposures to emerging markets equities and to smaller cap equities within the United States.

Global markets hit 2020 highs in mid-February as the Coronavirus (COVID-19) appeared to be contained within China and the number of new cases outside of China had fallen for 15 consecutive days. However, as news hit in midmonth that the virus had spread to multiple, previously unaffected countries, global markets corrected more than 10% on concern that the China-centric virus could become a global pandemic. In addition to the unfortunate human toll, the market’s concern is on the economic impact on global aggregate demand, global supply chains and corporate earnings. In the short term it is reasonable to expect the stock market to be highly dependent on the spread of the virus. This external shock is clearly a negative for sentiment and is a very difficult risk to predict or handicap.

VAM DISCRETIONARY FUNDS

VAM Cautious Fund

The market moves in February were very much governed by the market reaction witnessed in the final days of the month. Equity markets reassessed the potential impact the Coronavirus outbreak could have upon the health of the global economy which triggered a sharp synchronised sell-off across global markets. The Chinese and Emerging Markets had, until this point, borne the brunt of negative sentiment relating to the Coronavirus outbreak, following the lockdown of Wuhan and restricted travel covenants implemented within the Chinese mainland. Markets further afield only began to fall heavily on 24th February, with the news from Italy over the weekend concerning the rapidly growing number of cases there being the main catalyst to focus investors’ minds concerning the potential impact of the virus in jurisdictions outside of Asia. While there is still scope for the news flow to get worse before it gets better, we need to stay objective and remember that, as frightening as this can be, it will eventually be brought under control and, at most, should affect one year of earnings (for companies with strong balance sheets). Companies are now coming to the market and updating on the likely impact on their businesses, and investors have repriced equities with much of the multiple expansion seen in recent months reversing. From the market’s peak earlier in February, the S&P500 entered correction territory (where the market falls in excess of 10%) in just six days, the fastest correction since July 1933.

Given the negative supply chain impact, the steps taken to reduce the spread of the virus and the inferred impact on global growth this year, expectations have picked up that some monetary intervention will be enacted. The expectation and rhetoric in recent months have moved towards monetary policy remaining looser for longer and, therefore, rate cuts or additional quantities easing measures are now foreseen as highly likely. On 28th February, Federal Reserve Chairman Jerome Powell said the Coronavirus “poses evolving risks” to the US economy and signalled that the Central Bank is prepared to cut interest rates if necessary. At the end of the month, Haruhiko Kuroda, Governor of the Bank of Japan, also said that he would “strive to provide ample liquidity and ensure stability in financial markets” amid the worldwide Coronavirus scare. Measures to cut interest rates may be of some aid to businesses, however, given the supply chain impact Coronavirus is causing, the Manager suspects that, until measures are taken to restore these supply lines, financial market confidence will remain subdued.

VAM Balanced Fund

The market moves in February were very much governed by the market reaction witnessed in the final days of the month. Equity markets reassessed the potential impact the Coronavirus outbreak could have upon the health of the global economy which triggered a sharp synchronised sell-off across global markets. The Chinese and Emerging Markets had, until this point, borne the brunt of negative sentiment relating to the Coronavirus outbreak, following the lockdown of Wuhan and restricted travel covenants implemented within the Chinese mainland. Markets further afield only began to fall heavily on 24th February, with the news from Italy over the weekend concerning the rapidly growing number of cases there being the main catalyst to focus investors’ minds concerning the potential impact of the virus in jurisdictions outside of Asia. While there is still scope for the news flow to get worse before it gets better, we need to stay objective and remember that, as frightening as this can be, it will eventually be brought under control and, at most, should affect one year of earnings (for companies with strong balance sheets). Companies are now coming to the market and updating on the likely impact on their businesses, and investors have repriced equities with much of the multiple expansion seen in recent months reversing. From the market’s peak earlier in February, the S&P500 entered correction territory (where the market falls in excess of 10%) in just six days, the fastest correction since July 1933.

Given the negative supply chain impact, the steps taken to reduce the spread of the virus and the inferred impact on global growth this year, expectations have picked up that some monetary intervention will be enacted. The expectation and rhetoric in recent months have moved towards monetary policy remaining looser for longer and, therefore, rate cuts or additional quantities easing measures are now foreseen as highly likely. On 28th February, Federal Reserve Chairman Jerome Powell said the Coronavirus “poses evolving risks” to the US economy and signalled that the Central Bank is prepared to cut interest rates if necessary. At the end of the month, Haruhiko Kuroda, Governor of the Bank of Japan, also said that he would “strive to provide ample liquidity and ensure stability in financial markets” amid the worldwide Coronavirus scare. Measures to cut interest rates may be of some aid to businesses, however, given the supply chain impact Coronavirus is causing, the Manager suspects that, until measures are taken to restore these supply lines, financial market confidence will remain subdued.

VAM Growth Fund

The market moves in February were very much governed by the market reaction witnessed in the final days of the month. Equity markets reassessed the potential impact the Coronavirus outbreak could have upon the health of the global economy which triggered a sharp synchronised sell-off across global markets. The Chinese and Emerging Markets had, until this point, borne the brunt of negative sentiment relating to the Coronavirus outbreak, following the lockdown of Wuhan and restricted travel covenants implemented within the Chinese mainland. Markets further afield only began to fall heavily on 24th February, with the news from Italy over the weekend concerning the rapidly growing number of cases there being the main catalyst to focus investors’ minds concerning the potential impact of the virus in jurisdictions outside of Asia. While there is still scope for the news flow to get worse before it gets better, we need to stay objective and remember that, as frightening as this can be, it will eventually be brought under control and, at most, should affect one year of earnings (for companies with strong balance sheets). Companies are now coming to the market and updating on the likely impact on their businesses, and investors have repriced equities with much of the multiple expansion seen in recent months reversing. From the market’s peak earlier in February, the S&P500 entered correction territory (where the market falls in excess of 10%) in just 6 days, the fastest correction since July 1933.

Given the negative supply chain impact, the steps taken to reduce the spread of the virus and the inferred impact on global growth this year, expectations have picked up that some monetary intervention will be enacted. The expectation and rhetoric in recent months have moved towards monetary policy remaining looser for longer and, therefore, rate cuts or additional quantities easing measures are now foreseen as highly likely. On 28th February, Federal Reserve Chairman Jerome Powell said the Coronavirus “poses evolving risks” to the US economy and signalled that the Central Bank is prepared to cut interest rates if necessary. At the end of the month, Haruhiko Kuroda, Governor of the Bank of Japan, also said that he would “strive to provide ample liquidity and ensure stability in financial markets” amid the worldwide Coronavirus scare. Measures to cut interest rates may be of some aid to businesses, however, given the supply chain impact Coronavirus is causing, the Manager suspects that, until measures are taken to restore these supply lines, financial market confidence will remain subdued.

Sources: Driehaus Capital Management LLC and Sanlam Private Wealth.
Sanlam Private Wealth is a trading name of Sanlam Private Investments (UK) Ltd.

Disclaimer

VAM Driehaus, VAM Cautious, Balanced and Growth Funds are compartments of VAM Managed Funds (Lux).

This document is intended for use by professional financial advisers only. The distribution of VAM Funds and the offering of the shares may be restricted in certain jurisdictions. Private investors should contact their financial adviser for more details on any of the products featured. It is the responsibility of any person in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdictions. Prospective applicants for shares should inform themselves as to the legal requirements and consequences of applying for, holding and disposing of shares and any applicable exchange control regulations and taxes in the countries of their respective citizenship, residence or domicile. Click for Important Information