LO Funds
All Roads

MACRO AND MARKET REVIEW

After another year of highly concentrated performance, January 2025 brought a breath of fresh air to the investment world. While in 2024, US growth stocks and the technology sector monopolized investor attention, people have now rediscovered that global market valuations extend beyond a handful of S&P 500 stocks. Encouraged by signs that the global economic situation was recovering after two years of slowdown, the market seemed to regain confidence in a better distribution of performance across and within asset classes. The earnings season, or at least its first few weeks, supported this trend: not only did corporate profits exceed expectations by an average of 5%, but these positive surprises appeared on both the European and American fronts. Finally, in the United States, inflation remained high but ceased to surprise consensus on the upside. This sequence of events eventually convinced Wall Street to temporarily move away from the artificial intelligence theme, notably due to the emergence of low-price competition from DeepSeek, giving way to European and ‘value’ stocks.

In this context, global equities advanced by around 3.5%, led by value stocks (+4.4%) and Europe (Euro Stoxx +8.0%, FTSE +6.1%). The laggards of January included the MSCI growth index (+2.6%), the Nasdaq (+1.6%), and emerging market stocks (+1.6%), the latter still struggling to find their place in major investors' portfolios. 10-year real rates in the United States declined by 15 basis points, leading the way to a broad yield decline. Credit spreads contracted in line with equity performance: US HY experienced a 12 basis points fall, and the Xover retreated by 25 bps. As a final notable point for January, commodities advanced by 3.6%, driven particularly by precious metals, whose prices soared by 7.2%. The US dollar ended the month close to its starting point, albeit with a notable decline in the cable of nearly 1%.

February will likely be dominated by the trade war between the United States and its trading partners, which began at the end of January. China still appears to be Washington’s primary target, but the scope of the conflict and its impact on growth and inflation remain uncertain for now. Diversification therefore remains essential, as uncertainty increased by a notch at the end of the month.

FUND PERFORMANCE AND PORTFOLIO REVIEW

In January 2025, LO Funds - All Roads was up 0.9% (CHF NA share class). Over the month, equities were the top contributors with 45 bps primarily coming from developed markets. Commodities contributed 40 bps and corporate credit added 20bps while sovereign bonds detracted 20 bps, offsetting the positive contribution of emerging debt. Overlays performance contribution was negligeable, with our Trend strategies marginally up and our Carry and Macro overlays being flat. Portfolio exposure increased by circa 15% over the month, closing January slightly at circa 150%. Our volatility signals decreased across all asset classes except commodities. Momentum signals inflected for commodities with an acceleration in the upward trend while other asset classes remained stable over the month – positive for all asset classes except sovereign bonds. Our aggregated risk appetite indicator now indicates a Risk On environment, although its components exhibited large dispersion in January. On the macro side, our economic growth nowcaster continues to highlight a recovery – although its pace has slowed down. Our inflation signals still indicate that inflation surprises are now positive but decreasing. Finally, our monetary policy indicators indicate that central banks’ stance should remain accommodative. However, our signals point to a recalibration situation rather than to a series of aggressive cuts.