MACRO AND MARKET REVIEW
January was broadly positive across various asset classes, including equities, bonds and commodities, with Europe giving a standout performance. February, however, displayed more varied performances. Bonds continued to post positive returns, with US yields declining more rapidly than those in Europe. However, the performance of global equities was negative and uneven. Positive returns from European and emerging market equities did not manage to offset the declines seen in US stocks and, more broadly, in growth stocks. In spite of declining rates, the current performance of equities suggests a straightforward drop in expected earnings for the coming quarters – down from previously elevated levels. There are numerous reasons for this downward revision in earnings expectations: geopolitical tensions, an escalating trade war, potential growth risks from the DOGE initiative and the delayed impacts of high interest rates, to name a few. The result is clear: growth stocks lag value stocks, and global bonds are outperforming global stocks. The key question now is how long this ongoing rotation can continue. As uncertainties are currently clouding both micro and macro perspectives, it seems increasingly difficult to answer that question.
In February, global stocks achieved a negative performance, declining by 0.9%, primarily due to losses in growth stocks (-2.9%) and US stocks. Specifically, the S&P 500 decreased by 1.4%, the Nasdaq fell by 4%, and the Russell 2000 saw a 5.5% drop. In contrast, the Eurostoxx posted a positive gain of 3.3%. Meanwhile, the MSCI China index benefited from a renewed positive trend in tech stocks, surging by 11.5%. Interest rates declined globally, with US 10-year yields leading the decline with a 33 bps drop, while German 10-year yields fell by 5 bps. Short-term rates also decreased proportionally, with 2-year US yields down by 20 bps and 2-year German yields by 9 bps. Currency markets saw the EUR appreciating by 13 bps over the month with the asymmetry in rates movements, while the USD declined by 70 bps against a broader basket of currencies. In the commodities sector, returns were flat as rising metal prices were offset by declining energy prices.
March arrives with its set of challenges: impending trade tariffs, a complex geopolitical landscape, and the uncertain paths of AI "enablers" versus AI "adopters." With these factors in mind, a balanced allocation appears increasingly attractive as bonds currently seem as appealing as global stocks.
FUND PERFORMANCE AND PORTFOLIO REVIEW
In February 2025, LO Funds - All Roads had an unsignificant small negative performance -0.0% (EUR NA share class). Over the month, sovereign bonds were the top contributors with 45 bps while equities detracted 20 bps, particularly dragged by developed markets. Commodities detracted 20 bps while corporate credit and emerging debt added 5 bps. Overlays performance contribution was negative, with our Trend and Carry strategies detracting 15 bps while our Macro overlays was up 5 bps. Portfolio exposure remained stable over the month, at circa 150%. Our volatility estimates increased for equities and commodities, while our Risk appetite indicator whipsawed between neutral and Risk-On territory, with acute dispersion between its components. Momentum signals strengthened across all asset classes, however remaining negative for sovereign bonds markets. On the macro side, our economic growth nowcaster continues to highlight a recovery – although its pace has noticeably slowed down in the US. Additionally, our monetary policy signals indicate that central banks’ stance remains dovish, in spite of higher inflation pressures.
