Vector 2024 Annual Review

31 Dez. 2024

Dear Investors,

The global economy in 2024 experienced measured growth alongside notable transitions, including shifts in monetary policy, advancements in technology, and evolving geopolitical dynamics. Central banks moved toward more accommodative stances as inflation pressures eased, while technological breakthroughs—particularly in AI—reshaped industries and market leaders. Geopolitical tensions and trade adjustments further influenced the global economic landscape. Equity markets demonstrated resilience in face of these challenges, offering opportunities for diversified investors.

In developed markets, U.S. equities showcased another stellar year, with US equities rising significantly during the year. Europe, however, lagged, as its manufacturing sector grappled with a cocktail of high energy costs, restrictive regulations, and weak export demand. Asia delivered mid-tier performance, buoyed by a late recovery in Chinese equities as domestic stimulus measures improved investor sentiment toward the year’s end.

Some sectors, particularly technology and communication services, benefitted from the dominance of the “Magnificent Seven” companies. Within the MSCI indices, the top three companies in these industries now account for 55.16% and 69.04% of their respective composites, rendering them highly sensitive to the performance of a few dominant players. While regional and sectoral trends often boiled down to whether a composite included these giants, financials stood out as a notable exception. The sector demonstrated resilience, driven by optimism for deregulation following the U.S. elections. Conversely, other interest-rate-sensitive sectors, such as real estate and utilities, lagged the broader market.

Quantitative and multifactor investing strategies delivered mixed outcomes in 2024. Large-cap equities significantly outperformed small caps in developed markets, as investors sought stability amidst global uncertainties. Growth stocks reinforced their leadership, fuelled by an extensive rally in AI-related equities. Momentum emerged as the dominant strategy for the year, as trends that drove success in 2023 continued to deliver strong returns. While value stocks received some support from financials, they underperformed growth counterparts by a wide margin.

Vector Navigator achieved a performance of 17.64% in 2024. As the value-weighted structure of the benchmark disproportionally allocates to the dominant “Magnificent Seven” companies, our flagship fund held up relatively well. Vector Flexible recorded a return of 7.01% last year, largely in line with its competitors. Around the turn of the year, the hedge was further increased within the sub-fund as market valuations have gotten more expensive.

While the trend of increasingly concentrated positions within the benchmark has proven advantageous for passive investing in the short term, we do not believe it is sustainable over the long run. Our more diversified approach, which avoids excessive concentration risk, positions us to deliver durable value for investors. While it may create headwinds in the current market environment, we are confident it will benefit our investors in the long term by emphasizing diversification and resilience over fleeting market trends.

Best regards

Werner, Thierry & Nils