Markets:

August was a very good month for our funds: they all posted positive returns, outperforming the euro indices, thanks to our most active strategies: Altex DIPS and Altex USD, which made significant contributions to all equity funds.

Altex Tactical (specializing in volatility) was the fund with the highest monthly returns: +3.23%, followed by Altex Momentum up +2.93%, Altex Growth, +2.54%, and Altex Quality, +1.23%. Passive investment in euros performed significantly worse: S&P 500 (EUR) -0.52%, Nasdaq 100 (EUR) -1.55% and Euro Stoxx 50 +0.60%.

Jerome Powell’s speech at Jackson Hole, where the annual policy meeting of the world’s most influential is held at the end of August each year, was rather expansionary and more sensitive towards the American labor market, boosting the (already) bull markets. Powell was confident that inflation would be controlled although he also warned of the fragility of employment owing to the weakness on both supply and demand sides. In other words, although companies were hiring fewer people, unemployment had not grown substantially, because less people were looking for jobs. This is not a good scenario.

Markets interpreted this as an indication of the Fed’s intention to support growth, increasing the likelihood of rate cuts in 2025. It is now expected there will be a first cut in September, followed by another one during the last quarter of the year.

Meanwhile, the Trump administration has been easing tensions on various international fronts, both in tariff negotiations and in military conflicts.

As inflation is contained at moderate levels, and main market players (central banks and public administrations) are in an expansionary mode, markets have responded positively and are rallying.

The USD depreciated during the month (-2.31% vs EUR), dragged by expectations of lower interest rates. However, we have mitigated the YTD loss of -11.4%, thanks to our Altex USD strategy.

August saw a strong recovery for small companies (Russell 2000: +7% vs S&P 500: +1.90% in USD), that benefitted from lower monetary stress.

Powell’s message also impacted various sectors positively: long-term inflation expectations rose, boosting gold mining (+22% MTD) and regional US banks (+9%). The worst-performing sector was utilities, falling 1.58%.

Value outperformed Growth, although the most important factor was company size: Small Value increased by 8.5% and Small Growth by 6%, while Large Value was up 3.2% and Large Growth 1.18%.

In fixed income, yields of longer-term US government bonds remained almost unchanged (10-year bonds started at 4.21% and ended at 4.23%). In shorter term debt, rates were more compressed due to the closeness of the next rate cut (September). The two-year bond yield fell from 3.68% to 3.62%.

In Europe, where inflation is well anchored at 2%, the ECB has put its considerably more expansionary policy on hold for a few months, and both long- and short-term yields remained stable over the month. The yield of the German 10-year Bund was 2.69%.

Outlook and positioning:

We are still in a bull market scenario, characterized by overvaluation and good momentum, which favors buying once a correction begins. Cycle ends might stretch out and speculating when a cycle will in fact end without any objective data can be very dangerous.

At month-end we rebalanced our three equity funds. In Altex Momentum, we increased our exposure to the industrial, energy and materials sectors. Although we remain underweight in technology, we have increased our exposure. In Altex Quality, we increased our exposure to the industrial and materials sectors and reduced our exposure to technology to be more selective in large companies. While we increased financials, they remain underweight versus the index. In Altex Growth, with greater exposure to medium-sized companies, we changed the sector weights less. However, we are still overweight in industrials, technology, healthcare and consumer discretionary, and we have increased our exposure to materials.

The Altex USD strategy holds a 50% hedging against the USD and Altex DIPS has signaled market exhaustion at these levels. Both strategies have been major contributors this month.