LO Funds
All Roads

MACRO AND MARKET REVIEW

December 2024 will need to be added to the very narrow list of bearish December months for equity markets. While the month started well performance-wise, after the Fed meeting proved more hawkish than expected, investors decided to take some of their significant profits for the year, lowering equity exposures. This was due, in part, to the subsequent progression of yields that has clearly raised doubts in the market regarding the already high valuations of US equities. If one pattern has been preserved from the "Santa rally," it is the factor and regional aspect: emerging and European equities held their ground when most of the market decline happened in the US – the "Trump trades" saw their performances trimmed by a few percentage points. Is this the herald of a new trend favouring European over US assets? It is too soon to tell, but December certainly saw an interesting change in market tempo.

In terms of performance, world equities declined by 2.7%, mostly driven down by the "value" style (-5.8%), US stocks (S&P500 -2.5%) and smaller US caps (Russell -8.4%). The Eurostoxx 50 gained nearly 2% over the month, alongside the MSCI China up 2.5%. On the rates side, 10-year yields gained 40 bps in the US, almost entirely reflecting a rise in real yields, with the 2-10-year slope steepening by 30 bps. German yields rose by 27 bps as well, leading the asset class to suffer once more. High-yield spreads widened by about 15 bps, both in the US and Europe, while EM spreads also gained 15 bps. Commodities remained flat over the month as the progression in energy prices (+6%) was offset by a decline in all metals. Finally, with the rise in yields being stronger in the US, the USD gained nearly 2.5% over the month.

Currently, the world is continuing its nominal recovery after a difficult period in 2023 and 2024 for most economies outside of the US. As central banks cut rates, they are likely to add to this recovery and help earnings progress in their wake. Valuations will continue to weigh on investors' decisions, as well as the unknown prospects of Trump’s policy agenda this year. Welcome to 2025!

FUND PERFORMANCE AND PORTFOLIO REVIEW

In December 2024, LO Funds - All Roads was down -1.2% (GBP NA share class), returning a positive performance over the year (7.2%). Over the month, sovereign bonds were the biggest detractors declining by 110 bps. Emerging debt and credit detracted by 30bps while developed and emerging equities contributed marginally, 10 bps in aggregate. Commodities, volatility and inflation were flat. Overlay performance contribution was negative. Trend and Macro Risk Premia overlays detracted 5 bps and 15 bps respectively while Carry added 15 bps. Portfolio exposure decreased closing December slightly below 140%. Our volatility signals ended December roughly at the same level as at the end of November for most asset classes. Credit, developed and emerging equities experienced an uptick just before the FOMC meeting mid-December. Duration and commodities decreased slightly. Momentum signals presented more dispersion as developed equities momentum improved but sovereign bonds weakened. Corporate credit continues to present strong momentum. Our aggregate risk appetite indicator entered into Risk-On territory at the beginning of the month, before reverting back to neutral zone at the end. Finally, our economic growth nowcaster continues to highlight the current recovery climate with improving data in the US, the Eurozone and China over the month. Our inflation signals are still positive but decreasing, a positive signal for government bonds in the medium term. Finally, our monetary policy indicators remain accommodative – though the Fed policy could be less dovish than elsewhere given the most recent economic data.