June 2023 – Strong markets and more companies joining the rally

This month:

 

Sigma Fund Real Return +6.11% (+13.02% YTD)

Sigma Fund Prudent Growth +5.54% (+22.47% YTD)

Sigma Fund Quality Stocks +2.38% (+24.03% YTD),

 

while the MSCI World posts month end returns of +3.21% in EUR (+11.82% YTD in EUR).

Looking back at June’s performance, saying that this would have been the best month in the history of Sigma Fund Real Return or Sigma Fund Prudent Growth –with increases of +6.11% and 5.54%, respectively– would seem logical, but it isn’t. In January 2023, we recorded increases of over 8% in both funds, while the SFPG rose 6.66% in March. If we look further back, we can count 15 months in the last 5 years with rises of over 3%, and in the case of Sigma Fund Real Return, it posted even higher MTD returns on 14 occasions. In the 15 years prior to 2018, we had only recorded 2 months with rises of over 3%: December 2005 and October 2007. Something has changed in the market structure, and we should consider the risk of waiting for market sentiment to improve before investing: the cost of being out of a bull market can be much higher than the cost of staying invested during a crisis.

In 20 years of track record, both the markets and our strategies and capabilities have evolved. Central Banks’ intervention has increased considerably, and they now anticipate and manage expectations ahead of interest rates. Investors have become more sophisticated and there are more algorithmic funds, which tends to increase market volatility that, in turn, drives out more vulnerable, or less disciplined, investors. To adapt to such a demanding environment, at Altex we have developed and refined our management strategies especially in equities, hedging and currencies.

This June, despite the striking rise in indices (S&P 500: +6.47%, Nasdaq 100: +6.49%), the asset that has been giving us the clearest signals of market strength was the USD, and its weakness: -2.61% fall in 10 sessions, ending the month at -1.37%, after accumulating a 12% decrease since September 2022. We have gone from expecting a major recession to anticipating a more moderate one, and now some players are pointing to an end of the crisis with no recession at all. We continue to consider the possibility of a recession, although what we observe and can quantify weigh more in our assessments. All the speculation and literature we receive only serve to explain what has already happened and does little to help generate returns for portfolios and funds. What has worked best for us in the past and will continue to work best for us going forward is following a disciplined investment process, based on fundamental, quantitative, and statistical analysis, while minimizing macroeconomic speculation.

The asset class that has risen the most so far this year continues to be equities, and among its factors, the Growth factor, which accumulated a gain of 29.5% (IWF) in large cap stocks vs. 14.5% (IWO) in small growth companies. On the downside, are the low volatility companies (SPLV -1.66% for the year). Still positive, although with more modest results this year, are the large value companies (IWD +4.11%) and the small value companies (IWN +1.84%) factors.

Our Momentum strategy stocks (in local currency) are up +8.97% in the month, with Growth at +7.63%, and Quality at +4.21%. USD hedging allowed us to maximise the gain in Real Return and Prudent Growth vs Quality Stocks, where it detracted from month end return.

The Tactical strategy, based on our risk thermometer, is up +6.80% (nominal) for the month. We have already initiated proceedings to launch it as a standalone Sub-fund within the Sigma umbrella. Thermometer readings stayed positive throughout June.

The Trend Following system implemented in the Real Return and Prudent Growth Sub-funds for short positions was not triggered at any time this month, although we have recovered the marginal structural hedge in Prudent Growth that we had exceptionally eliminated some months ago, considering the risk of an eventual rebound.

For the next few months, we expect some containment in the rallies and perhaps some pullbacks that will probably serve as a call to buy for investors who are still out of the market. However, we will continue to rely more on our indicators and proven management strategies than on speculations about the near future.