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Vector 2019 Semi-annual Review

10 jul 2019

Dear investors,

After a wave of optimism had flushed the markets during the first quarter, sentiment got more mixed in the second quarter. In general markets were helped by a dovish tilt from central bankers around the globe as, despite facing macro-economic backdrop, investors believe that monetary stimulus can keep the economic expansion going.

In Euro-terms the MSCI All Countries NR Index ended the first half of the year 16.7% higher. Yet, there were some distinct regional differences. While US equities (+18.9%) continued to perform well, the speed of their increasing dominance over European companies (+16.2%) has somewhat diminished. Emerging markets (+11.0%) clearly bore the brunt of the blow in the US-China trade conflict. After a very good 2017, developing Asia has continued to underperform the developed world like they did during the lion’s share of the decade. The worst region to be invested in this year however was Japan (+8.2%), where monetary stimulus is all but exhausted and companies generally missed their earnings per share estimates.

Within investment styles the divide was equally spectacular with growth (+20.5%) outperforming value (+12.8%) by 7.7%. Misery loves company and this year value found a friend in low volatility stocks (+14.5%). The excellent performance these companies boasted during the month of May could not save them from underperforming the broad market. Momentum stocks (+19.7%) on the other hand continued to soar in 2019. Over the past decade momentum has been one of the most profitable strategies to invest in, returning a spectacular 16.2% per annum and leaving the other factor families far behind.

Vector Navigator recorded a return of 13.8% so far. Vector Flexible only gained 4.3%, as a significant part of the market risk was hedged. While 2019 started off strong most of our quant factors suffered significantly from mid-February till the end of April. The model has known a rebound in May, but there is still some alpha to be generated before we exceed the benchmark index’s performance this year.

Best regards,

Thierry, Werner & Nils