VAM Managed Funds (Lux) Commentaries

December 2018

VAM Driehaus Fund

As proxies for larger, broad equity exposures, note that the MSCI All Country World Index was up 1.46% and the S&P 500 was up 2.04% for the full month. On a relative basis, the VAM Driehaus Fund’s returns were hurt by the underperformance of its global smaller cap growth equities in addition to its emerging markets growth equities.

 

Despite positive monthly performance for larger, broad equity indices, the volatility and negative market sentiment for global equities were apparent in the 4.88% and 6.29% drawdowns for the MSCI All Country World Index and S&P 500 Index, intra-month (from the 8th of November through the 23rd of November). While the market rebounded over the last few days of November, there remains considerable concern by market participants with regards to future US and global economic growth. And while a lot of uncertainty is already reflected by lowered equity valuations, based on the uncertainties around trade tariffs and flattening yield curves, investors should expect continued volatility the rest of the year and into 2019. Investors should also note that while rare, it is possible for a bear market to occur for a broad market even if economic activity is positive. Consider that the S&P 500 Index dropped over 20% in November 1987 despite rising GDP and corporate earnings.

VAM DISCRETIONARY FUNDS

Market Commentary

It was a poor month for equities. December was a particularly bad month for the US and Japan with losses of -8.7% and -6.8% respectively. In GBP terms, Emerging Markets fell -1.7%. The UK and Europe also declined -3.8% and -4.8% respectively.

 

UK bonds gained after the prior month’s losses. Gilts rose 2.4% and corporate bonds gained +1.4%. In the US and Europe, bonds rallied in local currency terms, gaining +2.1% and +0.9% respectively.

 

GBP remained stable versus USD, but weakened versus EUR (-1.3%) and versus JPY (-3.4%).

 

In USD terms, oil continued to decline sharply, falling -10.8%, while gold strengthened a further +5%.

VAM Close Brothers Cautious Fund

The litany of concerns relate to fears of economic growth deceleration, particularly in the US and China, the world’s largest economies, on the back of tighter liquidity conditions. Brexit, trade tensions and Trump tantrums have further worried investors. With global stock markets down -7.6% over the month, it was helpful that most of the portfolio holdings protected on the downside. For instance, the Fidelity Global Enhanced Income Fund fell -3.6% and the Newton Global Income Fund fell -6.5%.

 

Within fixed interest, the Fund’s UK government bond exposure rose 2.3% whilst its global bond exposure was flat in aggregate. Elsewhere, the Fund’s alternative exposure was slightly negative with gains from LXI Reit, up 1.7% and GCP Infrastructure, up 0.6% offset by Aviva Target Income, down -4.7%.

 

Overall, it is important to take a long-term view and equity valuations at their current levels should provide a margin of safety over the longer term. The Manager remains modestly overweight equities,
underweight bonds and neutral in alternatives relative to its strategic asset allocation.

VAM Close Brothers Balanced Fund

The litany of concerns relate to fears of economic growth deceleration, particularly in the US and China, the world’s largest economies, on the back of tighter liquidity conditions. Brexit, trade tensions and Trump tantrums have further worried investors. With global stock markets down -7.6% over the month, it was helpful that many of the portfolio’s holdings protected on the downside. For instance, the Lindsell Train Global Equity Fund fell -4.1% and the Brown Global Leaders Fund fell -5.3%.

 

Within fixed interest, the Fund’s UK government bond exposure rose 2.3% whilst its global bond exposure was flat in aggregate. Elsewhere the Fund’s alternative exposure was slightly positive with gains from Neuberger Berman Uncorrelated Fund, up 1% and BMO Global Equity Market Neutral up 1.2%.

 

Overall, it is important to take a long-term view and equity valuations at their current levels should provide a margin of safety over the longer term. The Manager remains modestly overweight equities, underweight bonds and neutral in alternatives relative to its strategic asset allocation.

VAM Close Brothers Growth Fund

The litany of concerns relate to fears of economic growth deceleration, particularly in the US and China, the world’s largest economies, on the back of tighter liquidity conditions. Brexit, trade tensions and Trump tantrums have further worried investors. With global stock markets down -7.6% over the month it was helpful that many of the portfolio’s holdings protected on the downside. For instance the Lindsell Train Global Equity fund fell -4.1% and the Brown Global Leaders fund fell -5.3%.

 

Within fixed interest our UK government bond exposure rose 2.3% whilst our global bond exposure was flat in aggregate. Elsewhere the fund’s alternative exposure was slightly positive with gains from Neuberger Berman Uncorrelated fund, up 1% and BMO Global Equity Market Neutral up 1.2%.

 

Overall it is important to take a long-term view and equity valuations at their current levels should provide a margin of safety over the longer-term. We remain modestly overweight equities, underweight bonds and neutral in alternatives relative to our strategic asset allocation.