Vector 2022 Annual Review

31 Dec 2022

Dear investors,

Developed market equities had a difficult run in 2022. Rising inflation, the Russian invasion of Ukraine, interest rate increases by central bankers and concerns about growth prospects all contributed to declining equity valuations. As a result, the global equity index was down about 13.0% by the end of the year.

Reversal was an important theme in 2022, being especially tough on the champions of the pandemic: while sectors like communication services, consumer discretionary and information technology all lost more than a quarter of their value over the year, long term laggards like the energy sector – recording a return of 41.8% last year - made a significant comeback. Quant investors who tend to shy away from sectors with bloated valuations were finally rewarded for being underweight in the global titans whose reality check had been long overdue.

Consequently, after a long period of underperformance, factor investing took off again last year with most factors performing quite well. While Momentum and Small Caps performed on par with the benchmark, Value stocks (-1.5%) as well as Low Volatility shares (-0.7%) had an exceptional year after being trashed during the pandemic. Our selection has surely had a tailwind of being tilted towards value stocks at the start of 2022. Since then, however, we have divested about 16% of the value stocks; replacing the holdings with core (6%), but especially growth stocks (+10%), whose valuations now start to make sense again from a quantitative rather than a euphoric point of view.

Vector Navigator recorded a loss of 7.40% during the year, which is about 6.8% better than the average global equity fund during the year. Vector Flexible nearly managed to end the year on a positive note, recording a loss of just 0.30% during 2022. This result was driven in part by the good selection of the core portfolio and in part by a successful market timing. Having next to no duration exposure helped significantly in 2022: while most competitors suffered enormous losses as interest rates increased, this virtually had no impact on the performance of Vector Flexible. As a result, we outperformed the Morningstar category by 12.1% during the year. We are very happy that the comeback - which we have always said was only a matter of time – did not test your patience any longer and we saw the first signs of a recovery for quant investing.

Best regards,

Werner, Thierry & Nils