Macro and Market Review
Major indices continued their relentless climb in June, boldly contradicting the time-honoured adage "sell in May and go away”. Equities not only reached new heights, but US stocks staged a remarkable comeback, narrowing the performance gap with their European counterparts that had persisted since the year began (at least in local currency terms). This rally lacks fundamental drivers: the spectre of a trade war still looms large, while Middle East tensions flared before settling into an uneasy calm. Despite this profoundly uncertain global landscape, markets have surged forward, propelled by renewed optimism clearly visible in risk appetite indices. US equities therefore closed higher than they began, though the underlying environment remains largely unchanged: fiscal uncertainties persist, and the much-discussed impacts of the trade war have yet to fully materialise. However, contrary to expectations, US inflation hasn't spiked but instead continued its gradual approach toward 2%. Similarly surprising, global trade growth in 2025 (5% annualised) is tracking at nearly double the rate observed between 2021 and 2024 (2.3%). This creates 2025's central paradox: while the world’s governance seems to have deteriorated –a trend obvious in survey data – actual economic figures stubbornly refuse to reflect this downturn. Resilient growth, normalising inflation and anticipated rate cuts have fueled market optimism, driving equity prices upward and compressing credit spreads.
Against this backdrop, global equities delivered a 4.2% return, powered by US markets. The S&P 500 advanced nearly 5% while the Nasdaq approached an impressive 6.5% gain. The Eurostoxx 50 lagged significantly, declining 1.1%, while emerging market equities surged over 5%. Declining US interest rates likely contributed to this divergence, with 10-year yields falling 17 bps even as European rates climbed by 10 bps. While this divergence weakened the USD by 2.5%, it simultaneously boosted USD-denominated assets across equities, bonds and commodities. The latter closed up 1.6% after a volatile month marked by Middle Eastern tensions
Portfolio Activity
Portfolio exposure increased over the month as the Fund’s dynamic risk management reverted to a full risk budget, closing the month at c135% exposure. The releveraging was spread across all asset classes, with only marginal changes in the composition of the portfolio that remains balanced between cyclical assets (c40% allocation to equities, credit and commodities) and defensive assets (c50% on inflation swaps and sovereign bonds, c10% on long volatility strategies). Our volatility estimates decreased over the month – with the exception of commodities volatility, which rose slightly – and are now all near the centre of their historical distribution (i.e. either in the second or third quartile) for all asset classes. Momentum signals continued to strengthen across all cyclical assets (commodities, equities, HY credit) and are now neutral for sovereign bond markets. Similarly, our aggregate risk-appetite indicator improved, indicating a risk-on environment since the first days of June. On the macro side, our economic growth nowcaster continued to show signs of slowing momentum, although there are large disparities between countries. Our monetary policy signals were unchanged and maintained a dovish tilt across the G10 world. Finally, our inflation nowcaster indicates that we remain in a disinflationary period, although inflation pressures are rebuilding.
Performance
In June 2025, LO Funds–All Roads was up 1.6% (EUR NA share class). Over the month, cyclical assets contributed positively, with equities contributing the most at 65 bps, equally split between emerging and developed markets, while credit indices and commodities added 25 bps and 30 bps, respectively. Defensive assets’ contribution was more contained, with sovereign bonds adding 15 bps and our long volatility strategies contributing 5 bps. Overlays’ performance was slightly positive over the month, with carry, macro and trend-following strategy contributions marginally up, contributing a combined 5 bps.
Outlook
Market exuberance is unmistakable, with investors seemingly unfazed by looming concerns like the approaching "Liberation Day" deadline or expanding US public deficits resulting from the “Big Beautiful Bill”. Interest rates in the US have declined – a key metric touted as validation of the Trump administration's success – while American equities trade at valuations exceeding twenty times current earnings. Amid this euphoria, investors would be wise to remain mindful of the uncertainties surrounding economic fundamentals, stretched valuations, and the yet-unknown full impact of escalating tariff conflicts. A measure of caution seems prudent in the weeks ahead, given the widening disconnect between market perception and economic reality.