Unprecedented times call for unprecedented measures...

25 May 2020

Dear investors,

Unprecedented monetary and fiscal stimulus - both in timing and size - by central bankers and governments around the globe saw stock markets rally significantly in April. In an effort to shield enterprises from the coronavirus crisis the Federal Reserve slashed its short term rates and expanded the size of its bond-buying programmes to include high yield bond ETFs, which lead junk bonds spread to tighten the most since 1998. In Europe, where much more monetary ammunation was already spent before the corona virus invaded, the ECB shifted the emphasis on flexibility – buying more bonds of those countries in need – and eased collateral requirements to calm the debt and equity markets. 

As a result the MSCI All Countries Index posted gains of 10.9% during the month, making up about half of the Q1 losses in one fell swoop. Yet, US investors were able to profit the most from the Central Bankers’ all-you-can-eat buffett. After all, the United States’ (-7.0%) year-to-date losses dwarf those of Emerging Markets (-8.4%) and, especially, Europe’s (-17.9%). We reckon that Europe’s underweight in the Technology sector (19% less than USA), which is posting year to date gains, and overweight in the Financial Industry (5% more than USA), which is one of the worst performing sectors in 2020, is driving a substantial part of this differential. Yet, the regional dispersion remains staggering – surely given the fact that the pendulum has been swinging that way for so many years before. Momentum – which is also doing extremely well as an investment style on its own – seems to be very dominant in today’s markets... Volatility also normalized further, with the VIX continueing its decent from its mid-marchs peak, which was only seen before during the financial crisis, to values that are more in line with its long-term average.

In April Vector Navigator (+10.2%) recorded a gain that is in line with the broad market and now stands at a year-to-date loss of 12.6%. Vector Flexible, which retained most of its hedge during the month, captured substantially less of the upturn (+3.6%). Since the turn of the year our allocation fund lost 6.3% of its value. As the divide between main street and wall street continues to grow we remain prudent and quite defensively positioned in Vector Flexible, if you do not share this sentiment then Vector Navigator – which has a full exposure to equity markets – may be a better product for you at this time. If you would like to know more on how to convert shares from Flexible to Navigator (or vice versa) then please feel free to contact us.

Best regards,

Werner, Thierry and Nils