Reports

July 2024 (click here to download)

VAM Fund

It is said that a week is a long time in politics so a month like July 2024 has felt like a lifetime. We have seen a failed assassination attempt on a presidential candidate, an effective abdication of a serving president and the nomination of the vice president as the candidate for the incumbent party. While all of this sounds like a script from some political drama, it has managed to add another element of uncertainty for markets to deal with.

During the first half of the year, we saw outsize returns and robust growth for many of the largest capitalisation stocks. In June, we began to see a shift of capital down the market cap spectrum to a relatively limited extent, but July seemed to be the month where those previously strongest performers really begin to fall out of favour with investors. This year there have been many times that the market has shrugged off bad news and continued its upward trajectory. This past month has, however, seen some weaker US economic news, especially with regards to jobs.

We saw the unemployment rate move from 4.1% to 4.3%. This was something that had been carefully engineered by the Fed, in the form of a protracted period of higher rates and was done in order to help tackle the persistent inflationary environment. The extent of the job market weakening was, however, greater than expected and spooked investors. The Fed has subsequently come under increasing pressure to cut rates and, the fact that, they didn’t do this at the July meeting is being seen as a policy error although they have indicated there will be a cut in September. The narrative is that inflation may not return to the nominal 2% target any time soon so investors will have to adjust to a new normal at around the 3% level. Given that we are almost already there, it is incumbent on the Fed to begin to lower rates in order to avoid tipping the economy into a damaging recession.

The one complicating factor is that the market had come to expect a Trump win over Biden in the November presidential election. This was generally regarded as inflationary due to the fact that Trump has pledged to cut tax rates for large corporates again and impose tariffs on imports from abroad. This will lead to lower tax receipts at a time when greater government spending is likely due to the conflicts in Ukraine and the Middle East. Once Biden stepped aside and Harris became the nominee, the nailed-on win for the Republicans is no longer as certain. This lack of certainty has led to some portfolio churn and profit taking at many fund houses, which has led to increased volatility in the typically thinner market volume we see in the summer months.

Japan has been the most important developed market in terms of its global influence towards the end of July and the beginning of August. After the move to a positive Central Bank rate by the BoJ, the first in a generation, there was a lot of selling driving the Nikkei Index down by the largest percentage since the ‘Black Monday’ sell-off in 1987. This jitteriness in Japanese markets managed to spill over into other developed markets and saw shares selling off across the world although those declines were relatively short-lived. The Manager does, however, think that we are likely to continue to see more market volatility until the end of the year so it is important it maintains the good level of diversification it has across the fund.

From a technical perspective, the long period of benign, trending markets that we have seen since the beginning of 2023 encouraged investors to add risk, but when volatility spikes and trending markets reverse direction, forced selling may be triggered which we have seen over the last couple of weeks. This is particularly prevalent in the systematic and hedge fund space, which can exacerbate the moves as selling leads to more selling. Selling by hedge funds and systematic strategies appears to have exacerbated the magnitude of the drawdown.

The Manager continues to believe that although we may continue to see volatility over the coming months, its diversification across both asset classes and geographies places the Manager in a strong position to ride-out interim market choppiness and benefit from upside moves in the market.

VAM MULTI-ASSET FUNDS

VAM Cautious Fund

July was another good month for diversified investors, albeit a volatile one with a strong rotation in equity markets. Both equities and fixed income asset classes responded positively to softer-than-expected US CPI and labour market data, which brought forward market expectations for an interest rate cut from the Federal Reserve in September. While equity returns were positive at a headline level, there was a considerable rotation in the market (see dispersion of MTD returns for Style Indices below) towards certain interest-rate sensitive areas such as small-caps and real estate (that on average have higher leverage and interest burdens) as well as much of the year’s laggards such as value stocks. This coincided with a consolidation in large cap US technology stocks, which saw some pressure on the back of quarterly earnings results. At the margin, investors appear increasingly concerned around the explosive growth in AI-related capital expenditures, while visibility of the kind of returns that can be expected on said investments remains low. Away from the US, UK equities were the best performing developed market in July, as better-than-expected economic data, broader market rotation and the confirmation of a Labour government proved supportive. Japanese stocks declined after a notable appreciation of the Yen, after the bank of Japan hiked interest rates given its large weighting towards exporters (a stronger currency impacts earnings generated overseas). While delivering modest positive returns, it was generally another challenging month for Emerging Markets, especially in China in light of ongoing challenges in the real estate sector requiring further policy intervention to provide liquidity to the financial system. All told, the Manager continues to believe that developments over the month are supportive of our central view of a “slowing but growing” global economy.

VAM Balanced Fund

July was another good month for diversified investors, albeit a volatile one with a strong rotation in equity markets. Both equities and fixed income asset classes responded positively to softer-than-expected US CPI and labour market data, which brought forward market expectations for an interest rate cut from the Federal Reserve in September. While equity returns were positive at a headline level, there was a considerable rotation in the market (see dispersion of MTD returns for Style Indices below) towards certain interest-rate sensitive areas such as small-caps and real estate (that on average have higher leverage and interest burdens) as well as much of the year’s laggards such as value stocks. This coincided with a consolidation in large cap US technology stocks, which saw some pressure on the back of quarterly earnings results. At the margin, investors appear increasingly concerned around the explosive growth in AI-related capital expenditures, while visibility of the kind of returns that can be expected on said investments remains low. Away from the US, UK equities were the best performing developed market in July, as better-than-expected economic data, broader market rotation and the confirmation of a Labour government proved supportive. Japanese stocks declined after a notable appreciation of the Yen, after the bank of Japan hiked interest rates given its large weighting towards exporters (a stronger currency impacts earnings generated overseas). While delivering modest positive returns, it was generally another challenging month for Emerging Markets, especially in China in light of ongoing challenges in the real estate sector requiring further policy intervention to provide liquidity to the financial system. All told, the Manager continues to believe that developments over the month are supportive of our central view of a “slowing but growing” global economy.

VAM Growth Fund

July was another good month for diversified investors, albeit a volatile one with a strong rotation in equity markets. Both equities and fixed income asset classes responded positively to softer-than-expected US CPI and labour market data, which brought forward market expectations for an interest rate cut from the Federal Reserve in September. While equity returns were positive at a headline level, there was a considerable rotation in the market (see dispersion of MTD returns for Style Indices below) towards certain interest-rate sensitive areas such as small-caps and real estate (that on average have higher leverage and interest burdens) as well as much of the year’s laggards such as value stocks. This coincided with a consolidation in large cap US technology stocks, which saw some pressure on the back of quarterly earnings results. At the margin, investors appear increasingly concerned around the explosive growth in AI-related capital expenditures, while visibility of the kind of returns that can be expected on said investments remains low. Away from the US, UK equities were the best performing developed market in July, as better-than-expected economic data, broader market rotation and the confirmation of a Labour government proved supportive. Japanese stocks declined after a notable appreciation of the Yen, after the bank of Japan hiked interest rates given its large weighting towards exporters (a stronger currency impacts earnings generated overseas). While delivering modest positive returns, it was generally another challenging month for Emerging Markets, especially in China in light of ongoing challenges in the real estate sector requiring further policy intervention to provide liquidity to the financial system. All told, the Manager continues to believe that developments over the month are supportive of our central view of a “slowing but growing” global economy.

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South African Investors: This is a Section 65 approved fund under the Collective Investment Schemes Control Act 45, 2002 (CISCA). Boutique Collective Investments (RF) (Pty) Ltd is the South African Representative Office for this Fund. Boutique Collective Investments (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002).

Disclaimer

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

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