Equity indices rose strongly in November (MSCI Europe NR +6.4%, MSCI USA NR +9.4%). The good inflation figures were reassuring, as was the fact that, from a fundamental point of view, corporate margins remained at a high level after the release of the 3rd quarter results.
We may be at the crossroads of two virtuous inflections. That of the monetary cycle, with the first rate cuts expected in the 1st half of 2024, combined with that of the growth cycle, with both sides of the Atlantic at the bottom of the cycle and a gradual improvement in activity expected. In addition, indices are attractively valued in both Europe and the United States, if we exclude the “magnificent 7”.
The positive news on inflation was well received by investors: the markets rallied strongly, particularly small and mid caps, which are well represented in the funds. Semiconductors (ASM Int’l, BESI, Aixtron) have benefitted from the easing in long-term bond yields. Our underweight position in defensive stocks (healthcare and consumer staples) boosted our funds in relative terms, as did our position in financials (BPER), particularly UK stocks (3i Group, Wise) whose good publications were welcomed by the market. Against this backdrop, the Digital Stars funds ended the month outperforming their indices. Digital Stars Europe Acc posted a monthly performance of +7.6% compared with +6.4% for the MSCI Europe NR. Digital Stars Continental Europe Acc ended November at +7.8% compared with +7.4% for the MSCI Europe ex UK NR. Digital Stars Eurozone Acc posted a monthly performance of +9.1% compared with +7.9% for the MSCI EMU NR.
The portfolio reviews carried out in November were diversified, increasing our positions in the real estate and financial sectors. Among the exits were IT, industry and healthcare stocks. The overweight of banking stocks in Digital Stars Europe is now at 5.8%.
Digital Stars Europe is overweight financials, real estate and industrials. The fund is underweight healthcare and consumer staples.
The UK is still the fund’s top weight at 19.5%, ahead of Italy at 14.6% (largest overweight) and Germany at 12.3%.
Digital Stars Europe Smaller Companies Acc ended up +6.9% in November, vs. +9.0% for the MSCI Europe Small Cap NR. IT stocks (X-Fab, Hanza) contributed the most, while the negative returns of stocks linked to energy (Okeanis Eco Tankers, Odfjell Drilling, Höegh Autoliners) restrained the rally of small-caps.
The monthly portfolio reviews have strengthened our positions in the real estate and media sectors. Sales were mainly in healthcare and consumer staples.
The portfolio is mainly overweight in consumer discretionary, consumer staples and energy, and underweight in healthcare, IT and financials.
The United Kingdom is the biggest country weight in the portfolio and weighs 23.3% (but remains the most largely underweight country), ahead of Italy at 12.1%. Greece is still the most overweight country at 8.4%.
Digital Stars US Equities Acc USD was up +10.7% in November, outperforming the MSCI USA NR at +9.4% and the MSCI USA Small Cap NR at +9.0%. The fund’s outperformance comes from the exposure to small and mid caps. Some construction-related industrial stocks performed well (Simpson Manufacturing, Builders FirstSource, Boise Cascade), as did a number of technology stocks (Workday, SolarWinds, Palo Alto Networks).
The latest monthly portfolio review mainly increased the positions in financials and utilities, and reduced those in IT and industry sectors.
The portfolio is significantly overweight in industry. The most underweight sectors are IT, media, and pharmaceuticals.
