Equity indices fell in October (MSCI Europe NR -3.6%, MSCI USA NR -2.3%). This was the 3rd consecutive month of decline. The tragic events in the Middle East have led to a sharp rise in the geopolitical risk premium, which is weighing heavily on indices. As is often the case in such situations, fundamentals have been sidelined, but this may only be temporary. The initial lessons drawn from the quarterly publications are indeed encouraging. Despite mixed sales releases, signalling that consumer spending is being held back by inflation, earnings are surprisingly positive. Corporate margins are therefore stronger than expected, and index valuations are very low, especially in Europe. In addition, the sharp fall in inflation points to an accommodative inflection by central banks, probably as early as the 1st half of 2024, which could fuel an equity rally in the coming months.
Geopolitical tensions in the Middle East have fuelled risk aversion, affecting stock markets, particularly the small and mid caps to which we are exposed. But these tensions did also benefit energy-related stocks (BW LPG, TORM, Hoegh Autoliners). Our banks (Banco BPM, BPER, BCP), which represent our main sector bet, stood out positively from the rest of the sector, particularly in southern Europe. Against this backdrop, the Digital Stars funds ended the month down compared with their indices. Digital Stars Europe Acc posted a monthly performance of -4.4% compared with -3.6% for the MSCI Europe NR. Digital Stars Continental Europe Acc ended October at -4.1% compared with -3.4% for the MSCI Europe ex UK NR. Digital Stars Eurozone Acc posted a monthly performance of -6.9% compared with -3.3% for the MSCI EMU NR.
The rebalancings carried out in October were diversified, increasing our positions in the financial services, communication services, and real estate. Among the exits were materials (packaging), industry and consumer discretionary stocks. The overweight of banking stocks in Digital Stars Europe is now at 5.4%.
Digital Stars Europe is overweight financials and industrials. The fund is underweight healthcare and consumer staples. The UK is still the fund’s top weight at 18.9%, ahead of Italy at 14.9% (largest overweight) and Germany at 12.7%.
Digital Stars Europe Smaller Companies Acc ended down -4.9% in October, like all the small caps segment. But the fund outperformed the MSCI Europe Small Cap NR at -5.9%, thanks to our stocks linked to energy (Advance Gas Holding, BW LPG, Okeanis Eco Tankers), our banks (BPER, Banco BPM), and some real estate stocks (Aroundtown).
The monthly portfolio reviews have strengthened our positions in the energy sector, as well as in the industry and telecommunications. Sales were mainly in consumer discretionary and IT, as well as in health care.
The portfolio is still mainly overweight in consumer discretionary, energy and consumer staples, and underweight in IT, real estate and healthcare.
The United Kingdom is the biggest country weight in the portfolio and weighs 22.7% (but remains the most largely underweight country), ahead of Italy at 11.4%. Greece is still the most overweight country at 8.2%.
Digital Stars US Equities Acc USD was down -5.2% in October, underperforming the MSCI USA NR at -2.3% but ahead of the MSCI USA Small Cap NR at -6.3%. Exposure to small and mid-cap stocks explains the performance differential, as well as the correction of some companies that revised their guidance downwards.
The latest monthly portfolio review mainly increased the positions in industrials and financials, and reduced those in consumer discretionary sector.
The portfolio is significantly overweight in industry. The most underweight sectors are media, pharmaceuticals and IT (semiconductors).
