Markets continued to drift southwards in October. Reaction after the outbreak of hostilities in Israel was ambivalent, initially rising on the expectations that this could mark the end of US monetary tightening and then falling away again on robust employment numbers and Q3 GDP figures. The fact that the incremental growth in GDP was entirely mirrored by an increase in government debt suggests to us that this growth is not sustainable. In fact, the private sector in the US may already be in recession. In Europe money markets are already pricing in an 80% probability of ECB rate cuts by April next year and a 100% likelihood of a cut within the next 12 months. It could be that October has seen the Fund’s low point in 2023; indeed, the last few trading days have been noticeably stronger, in both absolute terms and relative to the index.
We are encouraged by market movements in recent days and believe that the Fund is poised for a rebound. This makes entire sense if the next movement in interest rates is going to be down. The USD has been weakening off which is also a sign that risk appetite may return to the markets and that growth equities may have a resurgence. They are certainly looking cheap. The portfolio is trading on PEG ratios of 0.8x for the next 2 years which on a historic basis looks good value, in our view.
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