Ouessant A

August 2023

The month of August, punctuated by a number of economic announcements and statistics in lower-than-normal volumes, pushed MACH’s strategy to the limit, and it sought to adapt by frequently making marked changes to its exposures.

During the first week of the month, the strategy is globally short sovereign bonds. It was long equities on August 1st and 2nd, with little exposure to equities thereafter. On August 2nd, the Fitch rating agency surprised the markets by downgrading the USA’s credit rating from AAA to AA+, citing budgetary concerns and a deterioration in governance due to political polarization. This announcement led to a fall in equities on the same day and the following day. The strategy recorded a loss over the period, particularly on the 2nd (on equities) and the 4th (on North American bonds).

The unexpected announcement by the Italian government on the evening of August 7th of a 40% tax on the “super-profits” of banks that had benefited from the rise in interest rates, caused a sharp fall in Italian bank shares on the 8th and had a domino effect on European markets. This measure also led to a rise in sovereign bonds, to which the strategy subsequently took very positive exposure, while gradually increasing its long equity exposure. The following day, in response to market reaction and concerns about banking stability, Giorgia Meloni’s government adjusted the proposed tax, limiting it to 0.1% of assets instead of 25%. This about-turn led to a rebound in European equities on August 9th. During this turbulent phase, the strategy reacted swiftly, but recorded declines due to sovereign bonds on the 8th, followed by US equities on the 9th.

The release of the better-than-expected US producer price index for July on August 11th sent equities lower and rates higher. This publication fuelled concerns about inflation and wage growth, rekindling the spectre of a possible Fed rate hike at its next meeting in September. Following the publication of this statistic, the strategy crystallized significant losses on European bonds and Asian equities, and then gained negative exposure to all asset classes. It maintained this short exposure until August 22nd, taking advantage of the fall in equity and bond markets from the 14th to the 17th. Rising bond yields, rising energy prices and growing concerns about the Chinese economy undermined investor enthusiasm over the period.

Finally, the strategy re-exposed itself positively to equities and bonds from the 23rd. European stock markets rebounded following the publication of economic slowdown data for the eurozone, reducing the risk of rate hikes by the ECB and leading to a rise in bonds. But investors remained on tenterhooks over the Fed’s monetary policy expectations, as data published on the 24th showed that weekly jobless claims had fallen in the USA, prompting some to fear that the Fed would prolong the period of high rates. Finally, from the 29th onwards, the release of encouraging data on the US employment front led to an easing in the bond market, with investors beginning to feel optimistic that the Fed would not raise key rates again.

The strategy posted a monthly net performance of -2,77 %* for Ouessant (A share) and et -7,51%* for Mach 3 (A share).

Below is a breakdown of Ouessant’s daily returns and cumulative returns contribution in August 2023** :

*Past performance is not a reliable indicator of future performance. The funds carry a risk of capital loss.

**These data refer to past periods and are not necessarily representative of future changes in the allocation of risk. The risk allocation is broadly similar for the Ouessant and Mach 3 funds. Naturally, there may be a slight difference linked to different operational factors.

Thank you
— Vivienne Investissement Team