Portfolio Manager Update | HESPER FUND - Global Solutions
HESPER FUND – Global Solutions (*)
Key points at a glance
- Stocks hit a speed bump as the roaring 2024 came to an end. Yields soared and the dollar strengthened.
- China signals bolder stimulus for next year as Trump returns.
- The HESPER FUND – Global Solutions fell 1.79% in December, as many Trump trades fizzled out and yields soared. For the year, the fund posted a 4.88% return.
- The HESPER FUND – Global Solutions refined its portfolio allocation. Net equity exposure was first raised to 40% and recently halved to 20% as the tech rally faded. The overall duration stance was sliced to 2.5 years. In FX, the allocation remained unchanged. Gold exposure was maintained at 6%.
31.12.24 - Emboldened Trump returns to power
HESPER FUND – Macro Scenario: US economy surprised again in 2024 despite the Fed and the election
The US economy continued to expand at a solid pace in the third quarter (3.1%), largely driven by a broad-based increase in consumer spending. US growth is estimated to have continued at a similar pace in the final quarter of the year. Inflation hasn’t cooled off fast enough to fall towards the Fed’s 2% target by the end of the year. Thus, market expectations for rate adjustments have continued to fluctuate widely, with only a few rate cuts now expected in the coming quarters.
Against this backdrop, Trump is returning to power with an ambitious and aggressive agenda aimed at making profound changes both in the US and abroad.
Meanwhile, the world economy is bound to a soft landing amid worrying geopolitical developments, concerns about the new US stance on trade and ongoing wars in Ukraine and the Middle East.
Monthly performance and current positioning
The HESPER FUND – Global Solutions (T-6 EUR) lost 1.79% in December as stocks suffered a setback, bringing YTD performance to +4.88%. Total assets remained stable at 56 million euro. Volatility over the past 250 days increased to 6.4%. The annualised return since inception slowed to 3.31%.
During the month, the fund initially increased duration to 3.8 and then shortened it to 2.5 as yields started to climb. Equity exposure was initially raised to 40% to take advantage of a potential Christmas rally but was later reduced to 20% as the tech stocks rally faded. The fund continued to trade actively in the FX space. We are maintaining a long exposure to the US dollar, including a long position against the euro and against the GBP, and an arbitrage in the forward market between the US dollar and the Hong Kong dollar. This transaction artificially raises the overall exposure to the dollar to 125% where it would otherwise be 40%.
The breakdown of December performance (-1.79%) was: -0.36% fixed income instruments, -1.53% equity futures, -0.03% commodities, +0.25%% currencies and -0.10% fees and expenses.
Outlook: all eyes on the US economic policy
The resilient overall global performance masks significant differences across regions and countries and is surrounded by significant downside risks and uncertainties. The performance of the productivity-led US economy has again surprised on the upside and is likely to continue to drive global growth. Expansion in Europe has softened and China has committed to further aggressive stimulus.
The world is bracing itself for a new US administration that intends to use instruments of economic warfare to achieve its geopolitical goals. In this new context, several countries, from South Korea to Germany, via Japan, Canada, Spain and France, are lacking the strong political leadership to face the challenges posed by the new Trump administration. This new scenario has increased risks and uncertainties for the world economy and financial markets.
We remain bullish on the US dollar, as trade tariffs and fiscal policy are the main transmission mechanisms that will foster the relative strength of the US economy relative to the eurozone. However, we remain vigilant as we see challenging times ahead for the Fed under the Trump administration.
The outlook for equities remains constructive in the short term, even though the Fed will not be as accommodative as the market had previously expected. The outlook for the bond market is highly uncertain. Trump’s trade and tax policies could initially accelerate growth and reignite inflation, but immigration policies could slow growth, and bold fiscal reforms could improve fiscal efficiency and rein in the federal deficit.
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