MACRO AND MARKET REVIEW
Following the unexpected results of the US election, which saw a clear Republican sweep, financial markets swiftly aligned themselves with a limited and distinct set of trades—commonly referred to as the "Trump trades". On the equity front, anticipated deregulation, tax cuts and trade tariffs have heralded a period of dominance for US stocks, albeit at the expense of non-US stocks. Also, the introduction of tariffs and the anticipated ballooning of public deficits have led markets to initially expect higher inflation rates in the US than previously anticipated. As a result, US interest rates have declined at a slower pace compared to those of the average G10 country. These relative economic shifts have notably bolstered the USD, while US assets have suddenly become among the most sought-after worldwide over the past month.
In terms of performance, global equities gained 3.9%, while emerging market equities saw a decline of approximately 3.6%. The Russell 2000 index exhibited an exceptional rise of 10%, with value stocks only slightly lagging, posting a 4.4% gain compared to 3.4% for growth stocks. Conversely, the Eurostoxx index witnessed a decline of 1.45%. In the credit markets, US credit spreads have narrowed more significantly compared to their European counterparts, with CDX High Yield spreads decreasing by 40 bps versus an 11 bps decline for the Crossover index. Additionally, rising geopolitical risks over the month have led to a 3.9% increase in the Energy sector. Amid these developments, the USD has advanced by 2%.
This December will be pivotal, potentially topping off a year of robust equity performance and weaker bond returns. A decline in US yields leading to a retreat in the USD could facilitate a more uniform performance across assets, possibly heralding your usual Christmas rally.
FUND PERFORMANCE AND PORTFOLIO REVIEW
In November 2024, LO Funds - All Roads was up 1.6% (EUR NA share class). Over the month, fixed income assets were the top contributors with sovereign bonds contributing 70 bps and corporate credit adding 35bps. Equities contribution was positive although heterogenous between developed markets (30bps) and emerging markets (-20bps). Commodities contributed 15 bps. Overlays performance contribution was positive, with our Trend and Carry strategies contributing 10 bps together. Portfolio exposure increased by circa 15% over the month, closing November slightly above 155%. Our volatility signals decreased across all asset classes. Momentum signals presented more dispersion as sovereign bond momentum improved but EM equities weakened. The positive trend in developed market equities appears to slightly fade, although corporate credit continues to present strong momentum. Our aggregated risk appetite indicator remained rather stable over the month, only briefly entering Risk-On territory post US elections before reverting back to neutral zone. Finally, our economic growth nowcaster continues to highlight a recovery, with 57% of macroeconomic data showing improvement over the month. Our inflation signals indicate that inflation surprises are now positive but decreasing. Finally, our monetary policy indicators indicate that central banks’ stance should remain accommodative – a message consistent with the recent FOMC minutes.
