Triasima ACWE Fund commentary – Q2 2022

2022-07-15

The economy

COVID-19’s influence on economic activity has become largely immaterial by now. Notwithstanding, some impact was recently felt in China due to their zero-COVID policy shutdowns.

Inflation rose further in advanced countries to levels unexpected to most observers. A key reason for the elevated inflation is the rise in household wealth over the past two years and the consequent surge on spending for goods. Other causes include the tight labour market and lingering supply chain disruptions. 

Central bankers stayed the course too long with their easy monetary policies long and now must catch up by aggressively raising short-term interest rates. Mid- and long-term rates also rose further in the quarter.

The war in Ukraine carries on, limiting supply and causing prices to rise for energy in Europe and for foodstuff at large.

Growth in most countries is slowing due to the inflation headwinds and declining real disposable income. Some advanced countries started showing signs of recession late this quarter.

The world equity market

The MSCI ACWI lost 13.0% this quarter. 

Weakness was broad-based with every sector posting a negative return. The main causes are high inflation and rising interest rates leading to fear of falling profits. The fall in the market so far is only due to an earnings multiples compression, since earnings estimates for 2022 are still rising. 

The worst-performing sectors were Information Technology (-19%) and Communication Services (-16%), due to higher rates reducing growth stocks valuations, and the cyclical Materials (-17%) and the Consumer Discretionary (-18%) sectors. 

The best-performing sectors were Energy (-2%) as well as Utilities (-4%) and Consumer Staples (-3%), both with defensive characteristics. 

The Fund

The Triasima ACWE Fund fell 14.9% this quarter.

Sector allocation contributed positively to relative performance, but security selection detracted value. The Energy overweight and the Information Technology underweight added value. The Real Estate and Financials sectors had a negative impact, but it was selection in Materials that was most detrimental to relative performance. 

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

Negative impact

Positive impact

Eli Lilly & Co.

Alcoa Corp.

Amazon.Com Inc.*

YouGov PLC

BP Plc

Watches of Switzerland PLC

TotalEnergies SE

Live Nation Ent. Inc.

Novo Nordisk A/S

Swissquote Group Hold. SA

*Amazon was not held in the fund.

Sales exceeded purchases this quarter, with the portfolio tilting away from cyclical and towards defensive sectors. The Financials, Materials, and Consumer Discretionary sectors were reduced and Consumer Staples, Health Care, and the cash reserve were added to. 

The Three-Pillar Approach ™

On the quantitative side, the Fund has superior risk, expectations, and revenue and profits growth parameters than the benchmark. Valuation metrics are more expensive and profitability levels, lower.

The world equity market’s negative trend continued this quarter. Defensive factors such as dividends, value, and profitability outperformed the growth and volatility factors.

The fundamental background to world equities deteriorated further due to elevated inflation and rising interest rates. Slowing economies and lower expected corporate earnings point to poor outlooks in the short term and for 2022.

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