June 2021 – Solid fundamentals shine bright

Spectacular month of June for our Funds and Portfolios: Sigma Fund Real Return posts month-end returns of +4.39% (+5.43% YTD), Sigma Fund Prudent Growth returns +7.51% (+10.72% YTD), and Sigma Fund Quality Stocks was up +7.72% (+19.25% YTD) vs. MSCI World +4.64% in EUR (+15.72% YTD in EUR).

Only a few weeks ago it appeared markets were again willingly overlooking Growth companies and preferred sectors such as Energy, Banks, and Commodities. In the current environment of economic recovery, this kind of sectoral rotations and corrections is completely normal, though they tend to be short lived if not backed by solid fundamentals. The Post-Covid economic reactivation is spreading to more and more countries, and this is proving to be positive for many cyclical Growth sectors that had been hurt by the pandemic. Over this period that a priori seemed less favourable for our strategies, we have concentrated our portfolios in those same cyclical Growth sectors, and in June companies with a brighter mid- and long-term outlook began to shine again. As mentioned in previous communications, FAAMG stocks and companies with even higher growth bias are posting incredibly good results, while prices are contained. Now that the “Value” boom is over, these companies are catching up and have turned what has traditionally been a sluggish month into what might be considered one of the best months this year. Nasdaq 100 EUR: +9.5%, SP500 EUR: +5.26%, Russell 2000 EUR: +4.86%, against Eurostoxx 50 +0.61% and Ibex 35 -3.58%.

We have used this rally to increase hedges and rebalance portfolio excesses: we have gradually collected profits from semiconductors and increased exposure to companies benefitting from the reactivation. We have kept exposure to China low given the tensions created by Government intervention, rarely a harbinger of good news for investors. However, what we did increase following market corrections in March and May was our investment in Growth companies with higher volatility. This decision has boosted performance in June.

Based on our expectations for a faster reactivation in the US than in Europe, we have kept EURUSD levels unchanged, while reinforcing our outlook for a structurally bullish USD. Interest rates will remain contained in Europe longer than in the US, dragged by its less competitive business and labour structures. This positioning has also benefitted our returns in June.

In fixed income, we are sill keeping corporate and high-yield bonds at a distance: they still don’t offer attractive risk-return ratios for our portfolios.

We have also profited from the fall in volatility in futures and options: by selling these instruments we have largely offset the cost of hedges via short positions in US and European indices.

Throughout June, our thermometer was at a level attractive for increasing risk, allowing us to extend gains longer in time than if only purely qualitative considerations were taken into account. This tool is turning out to be extremely useful, especially in periods when market’s attention is focused on seasonal criteria such as the well-known “Sell in May and go away…”, which are increasingly fallible given the structural changes in financial markets.

Going forward, over the next semester, stimulus withdrawal and future rate hikes will both be back in the spotlight: signals were already sent out in the second quarter, and although markets quickly looked away, we must not forget all that lays ahead of us. The bullish cycle may indeed continue for years; the liquidity injection was extraordinarily large, and stimulus cannot be withdrawn abruptly, but we must be wary of corrections and of speculations on Central Banks’ next steps. Many companies are already overpriced and won’t be able to grow at the pace expected by their investors, which is why we will exclusively focus on companies with a growth profile above market expectations. We anticipate high sectoral dispersion over the second half of 2021, that will allow us to continue to find good investment opportunities for our more flexible strategies, such as Sigma Fund Real Return and Sigma Fund Prudent Growth. Sigma Fund Quality Stocks is beating the performance of its peer funds, and we continue to dynamically manage sectoral exposure to adapt to changing market trends.

In a nutshell: we are very proud of our strategies’ performance against a backdrop that is not so favourable for us, and we believe we are well positioned to deal with a period of increased volatility in the second half of the year. Many of our securities have shown a great revaluation potential. In a period of wholesale Government and Central Bank intervention, active long-term management has become crucial for the growth of our investors’ wealth. Have a happy summer!