Triasima ACWE Fund commentary – Q1 2023


The economy

The gradual slowdown carried on during the first quarter with higher interest rates further permeating economies worldwide. Macroeconomic data deteriorated. For instance, in the United States, PMI™ levels are now below 50 for both service and manufacturing industries, indicating a contraction. The consensus forecasts a recession over the coming months. 

The key offset to the impact of high interest rates is the strong labour market. Wages are rising while inflation slows downs, buttressing real disposable income, and propping up confidence. 

Inflation peaked back in the summer of 2022 and has been fading since. Central banks, however, have stayed the course and increased their respective overnight rates. 

The same inflation is buoying nominal revenues for corporations. But sales volumes are mainly stagnant while unit labour costs, and other input costs, are rising. The result is declining profit margins and falling earnings expectations in 2023. 

Due to higher rates, a banking crisis erupted in the United States over issues of funding stability and asset-liability mismatch. 

The world equity market

The MSCI ACWI had a 7.2% return this quarter.

Falling long-term interest rates and inflation were good news for the growth-oriented Information Technology (21%) and Communication Services (17%) sectors. That and the strong labour market combined to push up Consumer Discretionary (14%) securities. 

Energy (-3%) declined alongside oil and natural gas prices while Financials (-1%) were dragged lower due to the failure of Silicon Valley Bank. The defensive Healthcare sector (-2%) also lagged.

The risk-on rally was notable from a style factor perspective. The technology-oriented indices like the NASDAQ Composite (20%) and the Taiwan market outperformed the MSCI ACWI.

The Fund

The Triasima ACWE Fund had a 6.0% return this quarter.

Sector allocation had a negative impact on relative performance due to underweight positions in Technology and Communications, and the overweight in Health Care. Security selection partially offset this, with many sectors contributing positively. 

The following table presents the top and bottom contributors to relative return:

  Negative impact

  Positive impact

Grupo Aeroportuario Sur-Adr

Apple Inc.*

Nvidia Corp.

Computershare Ltd

Grupo Com. Chedraui Sa De Cv

Beazley Plc

Sigma Lithium Corporation

Tesla Inc.*

Hermes International

Unum Group

*Securities not held in the fund.

Many sales were defensive stocks from the Consumer Staples and Health Care sectors, with the latter’s large overweight position eliminated. The Fund shows a large overweight position in Industrials while the underweights in the Technology and Communications Services sectors are still present.

The Three-Pillar Approach ™

On the quantitative side, the Fund has superior risk, expectations, and revenue and profits growth parameters than the benchmark. 

The MSCI ACWE index seesawed this quarter from a low starting point. Its trend is now sideways, but with a positive bias. Speculative factors such as Beta and Earnings Variability strongly outperformed, and so did Growth due to falling interest rates. The Momentum factor, always overweight by Triasima, enormously underperformed.

The fundamental background to worldwide equities has improved to stable due to falling inflation and long-term interest rates, which are offsetting declining profits expectations. The outlook appears average for the remainder of 2023, given the 7% gain so far.

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