Report October 2023
The month of October has been a difficult month for the stock markets. European equity indices fell between 3.6% for the Stoxx600 index and 5% for the MSCI Midcaps Europe in the month. Stock prices factor in tough macro developments and the highest interest rate environment in a decade. In the US, the Russell 2000 of medium-sized companies also fell 7% in the year to October. Pareturn Columbus class I decreased by -5% in October 2023 and -3.7% year to date. Since its inception in June 2008, it has risen by 114.7%, widely outperforming the European equity indices.
There are three closely related factors that are affecting the markets and specifically midcaps. The first, interest rates, which after one of the most pronounced increases in recent decades, are beginning to show signs of stabilization. The second, macro expectations that until now have shown more strength than expected, but with signs of incipient weakness. Finally, inflation, which, although still high, has been substantially reduced. In this environment, investors have chosen to invest in the money market and short-term duration fixed income and concentrate on the “big 7” (Apple, Amazon, Google, Meta, Microsoft, Nvidia and Tesla). While it is true that consumers and certain trends (e.g. artificial intelligence) are favorable to these names, history shows that excessive concentration in certain stocks is a poor indicator of future returns. The market economy requires a broad group of companies that respond to economic needs and a good selection of securities tends to have better appreciation in the long term than the market average.
For the year 2024 we expect reductions in interest rates, which will be favorable for valuations and risk assets such as equities. In this environment, we are convinced that Columbus’ portfolio is well positioned with high margin, not excessively cyclical companies with healthy balance sheets.
Regarding the Columbus portfolio, during the month of October, the return of companies with good growth expectations stands out, such as YouGov, which presented results and rose 13% in the month, and other securities that had a strong performance, such as Elecnor (+8% ), EFG International (+5%) or Kontron which rose 4%. We particularly highlight YouGov, which rose significantly after publishing results that significantly beat the market expectations. On the negative side, industrial stocks continue to show weakness such as Duerr (-25%), Bodycote (-12%) which are suffering from the increase in costs. In all cases, we expect these companies to recover due to their restructuring plans and potential price increases.
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Since May 2023, Spanish investors have been able to access the Columbus strategy through the Spanish GVC Columbus European Equities FI fund. The Fund can be purchased through the AllFunds, Inversis and Fundsettle platforms. Columbus has a Master-Feeder structure: The Pareturn GVC Gaesco Columbus European Equity Fund in Luxembourg (master) and the GVC Columbus European Equties FI fund (subordinate). The Luxembourg vehicle offers institutional share classes denominated in euros and sterling and retail in euros and can be purchased by international investors.
