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Vector 2019 Annual Review

31 dec 2019

Dear investors,

After a disappointing fourth quarter in 2018, markets recovered exceptionally well during the first fourth months of 2019 as dovish central bankers around the globe seemingly convinced investors that the monetary stimulus could keep the economic expansion going for a little while longer. Towards the end of spring investors’ faith in the central bankers was duly tested as rather disappointing macro-economic and political news made the headlines more frequently than the bulls had hoped. Yet, after trailing sideways for about four months, stock markets picked up steam once more towards the end of September as macro-economic indicators improved and worst-case scenarios regarding US-China relations and Brexit negotiations were avoided.

As a result, global equities ended the year 28.9% higher. Still, there were some distinct differences in regional performance. US equities (+33.3%) were able to profit from the very strong performance of the High-Tech industry. European companies (+26.1%) surely didn’t have a bad year, but significantly underperformed their colleagues overseas. Finally, Emerging markets clearly bore the brunt of the blow in the US-China trade conflict and had to settle for a return of 20.6% in 2019.

There also was a marked difference in the performance of investment styles during the year. Growth (+35.2%) outperformed value (+22.8%) once again, adding another 12.4% to the return differential that has been building up between the two styles for the best part of last decade. Low volatility stocks (+23.3%) had an equally “bad” year, in relative terms at least, which is not surprising given the bullish sentiment of investors during 2019. Momentum stocks (+29.8%) continued to do well. In fact, buying the winners has been one of the most profitable strategies in recent history, boasting an annual return of 15.2% over the past decade.

Vector Navigator recorded a return of 22.3% in 2019. The more defensive version, Vector Flexible, had to settle for a return of 5.9% during the year. Finally, Vector Top Managers Mixed – our fund of funds – recorded a nice return of 14.4%.  While 2019 started off strong for Navigator and Flexible, most quant factors suffered significantly during the remainder of the year, with only growth stocks clearly outperforming the global index. While factor investing has been going through a tough period these past years, we are confident that the factor premia will normalize in due term and fundamental active management will add value in the coming years.

Best regards,

Werner, Thierry and Nils