Dear reader,
We would like to inform you through this newsletter about developments at Summetric Capital over the past three-quarters of a year. Summetric Capital is an equity fund that focuses on the US stock market, guided by data.
In brief:Achieved result:
Summetric Capital has made 15.9% net return since the beginning of this year.Market analysis Furthermore, in this newsletter, we like to talk about the various developments we saw in the stock market and the investment outlook.
Warm regards,
Team Summetric Capital
Maliebaan 48
3581 CS Utrecht
info@summetric-capital.com
(030) 2083 073
Since the beginning of 2024, Summetric Capital has achieved a net return of 15.9%. This means that an investment of €250,000 in January has now, at the end of August, grown to €289,742. We are pleased that our return target of 10-15% per annum has already been achieved within three quarters. This return has been achieved with a volatility of 10.54%, which is in line with our target.
The year 2024 began with continued interest rate hikes by the Federal Reserve, aimed at fighting inflation. These policies caused an economic slowdown, initially leading to mixed performances across sectors. Investors initially favoured technology and growth stocks, due to the impressive quarterly results of tech giants and the growing demand for artificial intelligence (AI) solutions.In the first quarter of 2024, the technology sector was the big outlier, helped by the ongoing rally around companies like Nvidia, Apple and Microsoft. These companies benefited greatly from the rise of AI and cloud technology, with Nvidia in a particularly dominant position due to its role as a supplier of hardware for AI applications.Demand for AI solutions drove profits in the technology sector, and investors looked for growth in this segment amid economic uncertainties.Defensive sectors, including utilities, healthcare and consumer staples, struggled in the first half of the year to compete with the explosive growth of technology. However, later in the year, as investors shifted their focus to more value-oriented stocks, these sectors began to perform more strongly. The utilities and financials sectors managed to emerge year-to-date as some of the best-performing sectors of 2024. This was partly driven by investors' rotation towards less risky assets and the need for stable returns amid economic uncertainty.
Small-cap stocks, or shares of smaller companies, started 2024 under pressure due to rising interest rates and economic uncertainties. Investors preferred large technology stocks, leaving small-caps behind. However, there was a notable reversal in July, the Russell 2000 index, which tracks the performance of US small-caps, rose 10.2%. This was mainly due to improving economic sentiment and renewed interest in riskier and cyclical stocks. Despite this rally, small-caps still underperformed large-caps year-to-date, mainly due to higher interest rates and investors' preference for more established, stable large-cap companies.Although small-cap stocks have performed significantly worse compared to large-caps over the past decade, it is important to recognise that historically, smaller companies tend to outperform larger ones over the long term. This is because smaller companies tend to have more growth potential with higher risk.This historical outperformance, combined with the lower valuations of small-caps, currently makes these companies attractive to investors. While past performance is no guarantee for the future, low valuations and the prospect of lower interest rates may revive the recovery of small-cap stocks.
US Federal Reserve (Fed) monetary policy remains central to investors' attention in 2024. While there was initial optimism about interest rate cuts in the summer, persistently high inflation dampened these expectations. The Fed has chosen to adopt a cautious and data-driven approach, which led to volatility in the bond market and mixed performance across asset classes.The market is keeping a close eye on Fed Chairman Jerome Powell's speeches, with speculation about possible interest rate cuts later this year. Investors are counting on a 25 basis point cut at upcoming meetings in September and November, followed by a larger cut in December. However, analysts are divided on these predictions, with concerns about a possible economic slowdown.If the Fed cuts rates gradually, US interest rates may remain relatively high, which could strengthen the dollar as investors seek higher yields. More aggressive rate cuts may narrow the interest rate differential with other countries, giving central banks such as the ECB more room to cut their own interest rates without weakening their currencies.At Summetric Capital, we hedge against currency risk between the euro and the US dollar as standard. This ensures that currency volatility does not affect our investors' returns. This strategy allows us to consistently provide stability despite volatile market and policy changes from both the ECB and the Federal Reserve. This allows us to manage risk effectively and focus on returns.
oWhile current high stock market valuations could potentially be a drag on long-term returns, we remain with Summetric Capital is optimistic about the outlook for 2024 and beyond. At the same time, we recognise that the market may remain volatile and that periods of uncertainty, market fluctuations and possibly even a recession can be expected over the next five to 10 years. This constitutes a reality that every investor must take into account, especially given current economic and geopolitical conditions.To be prepared for the potential risks, we adopt a disciplined approach with a constant short portfolio as insurance against downward markets. This strategy provides a buffer in periods of market downturns. At the same time, our focus remains on high-quality, low-volatility stocks, which exhibit less volatility over longer periods and can offer more stable returns. Our diversified portfolio, with positions in small-, mid-, and large-cap stocks, allows us to respond to market changes and outperform our benchmarks over the long term.One of the main concerns for investors is the possibility of sector and style rotations in the coming years. The past decade has been dominated by large growth stocks, especially in the technology and communications sectors, while small-cap and value stocks have often lagged behind. However, historical trends teach us that market dynamics can shift by decade.However, we do not make predictions on macroeconomic developments or share prices. As John Kenneth Galbraith ever said: "There are two kinds of forecasters: those who don't know, and those who don't know they don't know."
