Vector 2020 Semi-Annual Review

17 Juli 2020

Dear Investors,

2020 has been a wild ride so far to say the least… While markets initially shrugged off concerns about the Corona outbreak, the realization that the virus could have profound effects on global growth started to dawn on investors towards the end of February. In the couple of weeks that followed the virus, and panic amongst investors, had spread like wildfire, setting equity valuations back to levels last seen in 2015. Yet, unprecedented monetary and fiscal stimulus - both in timing and size - by central bankers and governments around the globe, along with economies starting to reopen saw stock markets rally significantly during the second quarter of 2020.

So, despite having some very volatile quarters, the loss of capital in the first half of 2020 was ‘just’ 6.3%. Yet, this relatively small decline covers up an incredible divide we have seen in regional, sectorial and especially in different investment-style’s performance. The United States (-2.5%), so far, suffered the least during the covid19-crisis. While this may be difficult to comprehend, as the US did not handle the health crisis exceptionally well, the country was able to profit from the huge weight the technology sector makes up in its main indices. Emerging Markets (-3.6%), where China – a heavyweight within the index - controlled the spread of covid19 with exceptional efficiency, also recorded relatively minor losses. Europe (-12.8%) on the other hand, which has a much larger presence of banks, is again well on its way to lag the United States.

Within investment styles the divide was often even more spectacular. Growth (+5.4%) outperformed value (-17.9%) by a staggering 23.3% during the first half of the year. Small caps (-12.9%), which often do not have the same reserves as their large cap brethren, also suffered extensively from the lock-down.  On the other side of the spectrum, Momentum (+5.7%) stocks continued to soar in 2020. Keep in mind that these styles stack on top of one another. Within the United States, for instance, small value stocks underperformed big growth stocks by about 45% in the past year.  

Vector Navigator recorded a return of -10.7% so far. Vector Flexible lost 6.8% of its value during the first half of the year. Both funds’ performance is slightly less than our benchmark. Yet, the analysis above goes to show that it is a very difficult year to outperform when you missed the growth and momentum train in 2020. We’re confident trees don’t grow to the sky and as markets suddenly realized the implications of covid19, they will – in time – also realize that growth and momentum stocks cannot engulf the entire real economy.

Best regards,

Werner, Thierry & Nils