New Capital Strategic Portfolio Fund

30 April 2024

Marketing Communication

Executive Summary

Key events in market

A combination of stickier than expected inflation, geopolitical concerns, and a dialling back in US interest rate cuts expectations; led to a weak month for risk assets. During the month we saw government bond yields trend higher, whilst equity markets reversed course following a strong Q1. In contrast haven assets such as gold and the USD benefited. We also had stronger than expected economic data, driving further fears the US Fed may not cut rates at all this year, not our base case.

Key performance & positioning updates

During April the Fund underperformed the reference benchmark by 120bps (see performance table). During this period, we saw the S&P 500 lower by 4.16% and the MSCI All Country World Index down by 3.25%. In Europe the DJ Eurostoxx lower by 3.19% for the month whilst in Asia the Hang Seng produced a positive return of 7.9%, all in local currency terms.

Market Update

Risk assets came under pressure during the month of April, as investors analysed several key inflation indicators which suggested the pace of progress in lowering inflation had stalled. This led markets to reprice potential future US interest rate reductions. As a recap, we came into 2024 with the market pricing close to 150-160 basis points of rate cuts against a federal reserve Dot plot of 75 basis points. Essentially, we witnessed the market in January expecting 6-7 rate cuts, whilst the Fed had communicated three cuts.

Fast forward to April and we have a dramatic repricing, with the market now expecting possibly one or two rate cuts. The timing has also been pushed further out, with probability of rate cuts moving higher as we move into Q3 and Q4 OF 2024. This move has a had profound impact, especially on sovereign benchmark bonds. During the month, we saw a sharp back up in yields across the curve as the mantra; higher for longer took hold. It was a similar experience outside the US too, with European and UK benchmark yields edging higher.

It came as no surprise that April proved difficult for our US sovereign allocation, however, in terms of credit markets, spreads remained well behaved. In fact, we also saw high yield spreads, generally viewed as the riskier element of credit, stay range bound. In our view we are closer to the high end of US benchmark yields. The short end, two year treasury note once again reaching the 5% yield level, we would look for this to move lower as we progress towards the end of the year. This should alleviate some of the inversion currently in place. For now, we are happy to hold our exposure within fixed income to around 34%. Predominantly spread across, fixed income complex, Investment grade, high yield across developed and emerging markets. We also have an allocation to convertible bonds which on a year-to-date basis has produced good relative return. Overall, the bond component produces a yield to maturity of 6.15%, has a 5.75yr duration with an average credit rating of A-.

Our asset allocation continued to favour equity over fixed income and during the month we trimmed several of our stocks as we felt some profit taking and risk management was warranted. We kept our exposure to the US Treasury curve and high-quality bond exposure. On real estate, we are now starting to take some profits on the homebuilders that have seen gains. No changes in commodities and on hedge fund allocations.

Fund Performance & Positioning

Asset Allocation (Alpha -0.29 %)

An increase in cross asset correlation during the month meant we saw a detraction across our equity and fixed income components. Having an overweight to equity relative to benchmark led to a detraction of 9 basis points, largely driven by our growth and longer duration assets. Having no exposure to the commodity complex and below benchmark exposure for hedge funds hurt the portfolio.

Security Selection (Alpha -0.91%)

Equity performance for the month came behind our benchmark, hurting the portfolio on a relative basis. Our overweight to technology and consumer discretionary came under pressure for most of the month, on the rate higher for longer narrative. Our lowered exposure to property on a relative basis added value, whilst the remaining components were essentially flat for the month.

Positioning

Our asset allocation for the month of April continued to favour equity over fixed income. Here we held close to 58% allocation to global equity markets with fixed income representing 34% of the Fund. Within alternatives we keep an underweight to hedge funds for now and used the property allocation as a source of cash.

The Fund underperformed the reference benchmark in April by 120bps, with the year-to-date return 0.05%, whilst our reference benchmark had a return of 1.25%. During this time the MSCI All Country World Index in USD, rose by 4.63%, on a year-to-date basis.

Within equity, the portfolio continues to focus on consumer discretionary, information technology, and industrials, at the expense of financials, consumer staples, and energy. From a regional perspective, the overweight positioning of Europe ex UK, Asia, and Japan are funded by an underweight allocation to the US. However, during the month we did add a new position in Goldman Sachs. We have been encouraged at the price action within financials and are keeping a close eye on this sector.

Elsewhere, the macro narrative proved an extremely challenging backdrop for our key overweight to consumer discretionary and technology. Both sectors are essentially viewed as long duration assets and held at the mercy of rates pricing. In our view, the earnings exhibited to date by our key names suggest this connection is a short-term response. In fact, on aggregate earnings on both revenue and earnings per share (EPS) have surprised to upside, with commentary generally positive. One of our key holdings for example is Microsoft. We remain bullish on the name. While adoption remains early, MSFT delivered a flurry of artificial intelligence (AI) data points indicating that AI adoption is picking up steam, helping sustain double-digit revenue growth.

In our view on a longer-term basis the portfolio will benefit from the market’s strong excitement about the potential of AI to improve productivity and boost economic growth, with exposure to Nvidia, Broadcom, Marvell Technology, etc. Our portfolio also has an overweight to the Consumer Discretionary sector on a global basis. Our focus has been on the luxury consumer companies in Europe, such as LVMH, Hermes and Ferrari.

	New Capital Strategic Portfolio Fund	BofA Merrill Lynch USD 1M Deposit Offered Rate Constant Maturity Index plus a risk premium of 5% per annum	Difference
1 Month	-3.77%	+0.92%	-4.69%
3 Month	+1.22%	+2.58%	-1.36%
6 Month	+18.62%	+5.26%	+13.36%
YTD	+0.05%	+3.51%	-3.46%
1Yr	+12.73%	+10.8%	+1.93%
3Yr Annualized	-4.77%	+8%	-12.77%
5Yr Annualized	+5.8%	+7.26%	-1.46%
Since inception annualized	+5.56%	+6.72%	-1.16%
Since inception 29.12.2014	+65.76%	+83.51%	-17.75%

Past performance is not necessarily a guide to the future. The value of your investments and the income from them may fall as well as rise as a result of market as well as currency fluctuations and you may not get back the full amount invested. Fund performance is net of fees and representative of the USD I Acc Share Class and shows a maximum of five previous calendar years and current year to date (computed on a NAV to NAV basis). Where share class inception begins prior to the five previous years the chart has been rebased to 100. Where the Fund has fewer than five full years of performance, returns are shown from the inception date. Source: EFG Asset Management, Bloomberg. As at 30 Apr 2024.

Outlook

Looking forward into the rest of this year, we are optimistic that our long run equity holdings are companies which exhibit earnings compounding quality with an expectation that their earnings will exceed the market. On the fixed Income side, we believe rates have peaked for most developed economies, which should see yields compress across the curve, leading to capital appreciation for our high-quality fixed income book, alongside favourable yields/coupons, which we have locked into. Although we appreciate the timing and magnitude of rate reductions will remain a contentious issue.

Driving our outlook, is the view that economic growth will slow, but not to the extent to cause a full-blown recession. With inflation measures causing some concern and labour dynamics stronger than expected, we fully appreciate market concerns on potential easing from central banks. Nevertheless, our base case remains that we will see some monetary easing, this with supportive fiscal measures and an upcoming US election, should see authorities provide a more supportive tone to their respective economies.

On the geopolitical side of the equation, it’s harder to foster a view. We have several general elections scheduled for 2024, across the globe. Each one with its own intricacies, and there could well be some volatility associated around these dates. However, our positioning in long duration assets in our view should largely be insulated. Nevertheless, we remain vigilant to these risks and would deploy hedging metrics.

Fund Managers

Mozamil Afzal

Global CIO, Head of EFGAM and EFGAM (UK) CEO
London

Equity
Fixed income
Multi-asset
Alternative

Detail

Sailesh Bhundia

Senior Portfolio Manager
London

Multi-asset

Detail

Find out more

Disclaimer

MARKETING COMMUNICATION

For professional clients, qualified investors and accredited investors only. The value of investments and the income derived from them can fall as well as rise, your capital is at risk. Note: Past performance is not a guide to the future. Returns may increase or decrease as a result of currency fluctuations.

All sources: EFG Asset Management (UK) Limited ("EFGAM"), Factset, Bloomberg, Morningstar as at end of the month. Any other sources as applicable.

This document has been produced by EFG Asset Management (UK) Limited for use by the EFG International ("EFG Group" or "EFG") worldwide subsidiaries and affiliates within the EFG Group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389736. Registered address: EFG Asset Management (UK) Limited, Park House, 116 Park Street, London W1K 6AP, United Kingdom, telephone +44 (0)20 7491 9111.

This document has been prepared solely for information purposes. The information contained herein constitutes a marketing communication and should not be construed as financial research or analysis, an offer, a public offer, an investment advice, a recommendation or solicitation to buy, sell or subscribe to financial instruments and/or to the provision of a financial service. It is not intended to be a final representation of the terms and conditions of any investment, security, other financial instrument or other product or service. The content of this document is intended only for persons who understand and are capable of assuming all risks involved. Further, this document is not intended to provide any financial, legal, accounting or tax advice and should not be relied upon in this regard. The information in this document does not take into account the specific investment objectives, financial situation or particular needs of the recipient. You should seek your own professional advice (including tax advice) suitable to your particular circumstances prior to making any investment or if you are in doubt as to the information in this document.

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Waystone Management Company (IE) Limited is the appointed Management Company and is regulated by the CBI. The Manager is a private limited company incorporated in Ireland under the company registration number C123529 with its registered office at 4th Floor, 35 Shelbourne Road, Ballsbridge, Dublin, D04 A4E0, Ireland.

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For Professional, Institutional and Wholesale Investors Only. This document has been prepared and issued by EFG Asset Management (UK) Limited, a private limited company with registered number 7389736 and with its registered office address at Park House, Park Street, London W1K 6AP (telephone number +44 (0)20 7491 9111). EFG Asset Management (UK) Limited is regulated and authorized by the Financial Conduct Authority No. 536771. EFG Asset Management (UK) Limited is exempt from the requirement to hold an Australian financial services licence in respect of the financial services it provides to wholesale clients in Australia and is authorised and regulated by the Financial Conduct Authority of the United Kingdom (FCA Registration No. 536771) under the laws of the United Kingdom which differ from Australian laws. This document is personnal and intended solely for the use of the person to whom it is given or sent and may not be reproduced, in whole or in part, to any other person.
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Offering Documents

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