The equity market neutral Seamor Fund recorded its 16th consecutive month of positive performance in September and is now comfortably in positive territory for the year and showing double digit annualised returns over a five-year period.
According to Sven Bouman (pictured), CEO, September was decidedly a risk-off market, with defensive, low beta, high quality and large cap stocks outperformed their counterparts.
“This was also reflected in our stock selection model,” says Bouman. “Style trends were similar to last months. Profitability and earnings momentum were the best factors. Stocks with attractive price trends also generated strong returns. All quality factors wrapped up the month in black. With three out of the four factor families up, our multi-factor model outperformed markedly.
As Bouman points out, European stocks ended the month in negative territory, falling almost 4 per cent. China’s prospects weakened further, while Eurozone data remained robust with healthy readings on many of the business activity indicators. Markets did not react to the Fed’s decision not to hike rates at the beginning of the month, but were subsequently shaken by events such as VW’s emissions scandal and the stock price movements in names such as Glencore. The dispersion in sector returns was the highest since January. Implied volatilities soared in Europe and elsewhere, which turned out to be one of the sharpest moves since 2000.
“In May we took off our pro-risk stance,’ says Bouman. “This helped the fund to preserve its assets during the difficult summer months. The recent environment has become more difficult. Value stocks have built up an increasingly high risk posture and momentum tends to have exposure to more defensive stocks. These tilts leave the value and momentum stocks somewhat exposed in the event of a reversal risk rally. This happened briefly in the first week of October, but markets have calmed down thereafter.
“Recently economic activity in the euro area has improved somewhat, showing that the Europe continues to diverge from emerging markets. However, weakness in EM could still spill over. EM-Consumer exposed stocks are expected to report weak earnings, while domestically-exposed stocks in Europe are seeing earnings upgrades. We will closely watch new macro economic data and track the earnings season. From a seasonality point of view, November and December have historically been strong equity months.”