VAM Managed Funds (Lux) Commentaries

VAM Fund

After the strong run we have seen in the markets since the lows of the pandemic, this year, the Manager has seen a key inflection point for growth stocks in the major global economies. Given how quickly share prices rose, a cycle of valuation normalisation was the natural consequence of the bull market we have just come out of. While some economic data and earnings remain robust, the headwinds that many market participants have feared are looming larger and impacting sentiment. This has been detrimental to share prices and the performance of the Fund has subsequently been affected. Despite a deteriorating economic outlook, much of the bad news is already discounted for in equity prices. While the performance of the Fund year-to-date has been challenging, the benefits of diversification, through the VAM Global Infrastructure Fund have been positive. Looking forward, as investors, now is as good a time as any in the last few years to build positions. Valuations are comparatively low, capital still relatively cheap and nominal economic growth likely to remain positive.

The year-on-year perspective has deteriorated given how strong economic data over the previous 12 months has been compared to forward estimates we are now seeing. The growth outlook, which weakened significantly across every region of the world, contributed to the weakness across asset classes in June. In the US, Gross Domestic Product (GDP) growth, in real terms, was negative in the first quarter and given that it is expected to be around or below zero for the second quarter, the country is heading for a ‘technical’ recession. With inflation now in high single digits, the nominal growth levels are expected to remain positive, as are corporate earnings.

Analyst estimate downgrades since March are due to the war in Ukraine, the spread of new Coronavirus variants in China, and, primarily, the persistently higher gas and energy prices. Central Bank action has been hawkish partially because inflation keeps surprising to the upside but also because the debate on whether we go into a recession in a large number of the global economies is prominent in the minds of investors.

One anomaly in the current environment is that consumer confidence has decoupled from the employment market. Normally, when unemployment is low, consumers are very confident (and vice versa). We have seen the Michigan Consumer Sentiment Index declining steadily so that it is now at its lowest recorded value since the series began in 1952. While household sentiment has deteriorated as the impact of inflation and higher energy prices put a drag on confidence, the fact that we are at such low levels of unemployment could be an indicator that any recession we do see is relatively short-lived.

VAM DISCRETIONARY FUNDS

VAM Cautious Fund

Over the month of June, major Indices faced one of their worst months since the early Covid-19 days. UK equities were down 5.2% and global equities were down 5%. Global high yield bonds were down 7.3%. Materials were down 11.9% and energy stocks were down 12.5%. Financials were down 7% and consumer discretionary stocks were down 6.8% as inflation hit new historical highs, further eroding consumers’ purchasing power. US 10-year treasury yields fell below 3% as growing recession fears dampened sentiment. The Federal Open Market Committee met in mid-June with Chair Powell stating that “we now understand how little we understand about inflation.”

VAM Balanced Fund

Over the month of June, major Indices faced one of their worst months since the early Covid-19 days. UK equities were down 5.2% and global equities were down 5%. Global high yield bonds were down 7.3%. Materials were down 11.9% and energy stocks were down 12.5%. Financials were down 7% and consumer discretionary stocks were down 6.8% as inflation hit new historical highs, further eroding consumers’ purchasing power. US 10-year treasury yields fell below 3% as growing recession fears dampened sentiment. The Federal Open Market Committee met in mid-June with Chair Powell stating that “we now understand how little we understand about inflation.”

VAM Growth Fund

Over the month of June, major Indices faced one of their worst months since the early Covid-19 days. UK equities were down 5.2% and global equities were down 5%. Global high yield bonds were down 7.3%. Materials were down 11.9% and energy stocks were down 12.5%. Financials were down 7% and consumer discretionary stocks were down 6.8% as inflation hit new historical highs, further eroding consumers’ purchasing power. US 10-year treasury yields fell below 3% as growing recession fears dampened sentiment. The Federal Open Market Committee met in mid-June with Chair Powell stating that “we now understand how little we understand about inflation.”

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

Disclaimer

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

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