Bellevue Global Macro (Lux)

The fund returned -2.5% in February with a volatility of 6.1%. During the month, the MSCI World Equity Index lost 2.5%, the JP Morgan Global Government Bond Index fell 1.0% and commodities lost 3.8%, all figures in euro hedged terms.

Renewed inflation fears negatively impacted all major asset classes. Consequently, all strategies contributed negatively to the fund performance with government bonds -0.94%, equities -0.85%, non-government bonds -0.27%, foreign exchange -0.25% and gold -0.15%. Government bonds were impacted by the 41 bps widening in the US 10-year treasury yield to 3.92%. The equity strategies were penalized by the biotechnology sector but underpinned by the dividend futures which contributed positively. Within non-government bonds, emerging markets were the most affected.

During the month, we reduced the equity exposure from 33% to 25% as the macro-outlook worsened. We lowered the exposure to the biotechnology sector from 16% to 9% and to the dividend futures from 10% to 6% on valuation grounds. We slightly increased the exposure to long term government bonds from 34% to 38% and non-government bonds from 27% to 28% in the market weakness. The total portfolio duration is 3.2 years vs the long-term average of 3.8. The main hedges of the fund are the 38% US 7-year treasury position, the 16% USD exposure and the 5% gold exposure.

We reviewed our scenarios on February 27. We increased the weight of scenario 3 and decreased scenario 1 and 2:

Scenario 1, weight 35%: US leading indicators bottom out, signaling that the worst of the economic slowdown is past. Markets rally. US inflation is likely to fall from now until June 2023 due to a pronounced base effect and the impact of monetary tightening. A Fed pivot would cause equity markets to rally. This is positive for non-government bonds, neutral to negative for government bonds and negative for the USD.

Scenario 2, weight 35%: Markets have already rallied significantly, interest rate expectations are too optimistic. The latest data continues sending mixed signals about a possible recession and uncertainty remains. Markets consolidate. This is slightly positive for equities and non-government bonds and slightly negative for government bonds.

Scenario 3, weight 30%: Re-accelerating inflation, deteriorating economic conditions, global trade tensions precipitate a market correction. This scenario is less likely on the 3-6 months horizon of these projections but has a higher probability on a 12-18 months basis, in our view. These risks combined would prevent central banks from loosening monetary policy in a significant way. Under this scenario, equity markets and non-government bonds correct. Government bonds, the USD and possibly gold would provide some limited shelter.