Equity indices posted a positive performance in May on both sides of the Atlantic. The MSCI Europe NR rose by +2.6% and the S&P 500 NR by +0.7% over the month.Since last November, equity markets have risen six out of seven months (with the exception of January).
They are driven by the promise of a strong economic recovery. Moreover, the return of inflation is good news as it helps spread accommodative monetary policies while allowing central bankers to grow their balance sheets. Real GDP in the United States could thus grow by 10% in 2021. Finally, the rotation of styles has taken a legitimate pause for the past two months, but this could be only temporary. Value could resume its ascendancy, favoured by an expanding economy, while Secular Growth (digital economy) should continue to benefit from an economy that is undergoing a profound transformation.
Digital funds posted their seventh consecutive positive month, slightly outperforming their benchmarks in May. However, the first part of the month was difficult. Our digital economy stocks (internet distribution, online gaming and semiconductors) suffered from profit taking due to fears of excessive valuations and the return of inflation. On the other hand, “quality” stocks, not well represented in the portfolio, recovered. The second half of the month was radically different and much more favourable, with a strong rebound in the technology sector (+10% for Digital Stars Europe technology stocks since May 19th), as well as good performances from shipping and cyclical sectors. The monthly performance of Digital Stars Europe Acc is +2.7%, compared to +2.6% for the MSCI Europe NR. Digital Stars Europe Ex-UK Acc ended May at +3% compared to +2.6% for the MSCI Europe ex UK NR. Digital Stars Eurozone Acc achieved +3.6% against +2.5% for the MSCI EMU NR.
The rebalancing carried out in May covered all capitalisations. We continue to include cyclical stocks in the industrial, financial and logistics sectors, as well as a few healthcare stocks. We are again selling renewable energy stocks, as well as some internet distributors. Digital Stars Europe remains overweight industrials, technology, consumer discretionary and is becoming overweight financials. The fund is underweight in healthcare, food and utilities, and neutral on commodities. The United Kingdom remains the top weighting at 18.7%, ahead of Sweden 15.8% and Germany 12.4%.
Digital Stars Europe Smaller Companies Acc rose +3.3% in May, outperforming the MSCI Europe Small Cap NR (+2.1%). Despite a difficult start to the month, the technology sector, as well as the industrial and consumer discretionary sectors helped the fund catch up and outperform. During the last monthly portfolio review, the model reduced holdings in real estate and automotive suppliers, and increased holdings in technology. The portfolio is still significantly overweight in industrials and underweight in real estate. The United Kingdom (20%), which is still very underweight, remains the fund’s leading country, ahead of Germany (17%), which is still clearly overweight.
Digital Stars US Equities Acc USD finished up +1.0% this month, slightly ahead of the S&P 500 NR at +0.7%, and ahead of the Russell 2000 NR at +0.2%. In relative terms, it was the underperformance of our banks, and the absence of energy stocks (the best sector in the market) that hurt most. Conversely, materials, health care and restaurants boosted the fund. The latest monthly portfolio review strengthened large caps. Technology, media and healthcare were reduced; financials and consumer discretionary were increased. The portfolio is overweight in consumer discretionary, banks, industrials and materials, and underweight in media, IT and healthcare.
