Elkstone Investment Services Monthly Bulletin

Investment Services December 2019


Paul Gorman, Portfolio Manager


There has been continued strength for equities in November buoyed by a decent earnings season, better economic readings and an easing of geo-political and trade war concerns.

Paul Gorman is Chief Investment Officer at Elkstone


The Market – Latest Dynamics 

Continued hopes of a US/China trade deal spurred a strong market rally with the S&P 500 +3.4%, the Eurostoxx 50 +2.75% and the MSCI Asia Pacific Index +0.4%. Bond markets were slightly weaker, with US Treasury 10 year yields rising from 1.7% to 1.8%. The USD recovered some of the ground lost in September/October and was +1.2% versus the EUR. GBP was also stronger, +1%, on hopes of a conclusive election outcome. Within the equity market Technology, Financial, and Healthcare sectors led, while defensive and interest rate sensitive sectors such as Consumer Staples, Real Estate and Utilities lagged.

Market Performance Returns – EUR (€) Denominated
Name Year to Date
Trailing 30D
November Return FY 2018
EUR (€) EUR (€) EUR (€) EUR (€)
Elkstone Global Equity Strategy +24.92% +1.81% (1.66%) +1.16%
db x-trackers MSCI AC World ETF +26.67% +3.67% +0.07% (6.20%)
U.S. – S&P 500 +28.96% +3.87% (0.18%) (6.24%)
Europe – Eurostoxx 600 +20.25% +3.05% +0.92% (13.24%)
Gold +18.79% (1.03%) +0.42% +3.11%
WTI Crude Oil +31.69% +8.99% (1.98%) (24.84%)
Source: Bloomberg, 10th December 2019
Elkstone Global Equity Strategy

During November the Strategy returned +4.0% compared to a representative global equity index of +3.7%. The Strategy is +26.2% YTD compared to an index return of +26.9%. Since inception in November 2017, the Strategy has returned +26.1% and is 4.9% ahead of a global index. Strategy performance was driven by Technology and Consumer Discretionary sectors. During the month we reduced exposures to Healthcare Equipment and Software, and increased Retail, Semi-Conductors and Banks.

Elkstone Observations

Amid easing trade talk tensions the S&P 500 made a new all-time high, bringing its YTD ascent to 25%, which if sustained would mark its best year since 2013. European markets have also been strong with Asian and UK markets registering healthy but lower returns.


Source: Bloomberg

We have entered a period of economic stability, characterised by the OECD now forecasting global growth of 3.0% for this year, next year and also for 2021. The chart below shows the Purchasing Manager (“PMI”) Indices which provide an insight into manufacturing industry confidence. The red line marks November and highlights the upward inflection in all regions except the UK.

Source: Bloomberg

The conclusion of the 3Q US reporting season resulted in broadly flat year-on-year earnings with around 80% “beating” estimates that has already been revised lower. Indicators of US employment, housing, retail and consumer sentiment indicators have stabilised, and signs of manufacturing sector weakness eased. Figures from Factset now show 2020 consensus expectations for 10% earnings growth and 5.5% revenue growth for S&P 500 constituents. Much of the growth is expected to be generated by 2019 sector winners, namely Consumer Discretionary and Technology. Earnings estimates for 2020 are trending positively for both U.S. markets as well as Europe, while flat or trending down for Japan and Emerging Markets.

European economic activity was generally better than previous months with consumer confidence and PMI business surveys improving. Germany narrowly avoided a technical recession in Q3 but business sentiment remains mixed. China hasn’t delivered as much easing as many market participants expected and the authorities seem content on maintaining stability while keeping leverage under control.

With equity markets on track to deliver full-year returns of >20-25% and bonds 5-10%, as we look towards 2020 investors may adopt some caution. US interest rates have been reduced but the Fed’s moves reflected a weakening economic picture and manufacturing downturn even if inflation remains subdued and below the 2% target. Money markets now price in just one additional interest cut in 2020, but a further economic deterioration could renew the pressure for renewed Fed easing. This time last year the Fed was signalling a readiness to hike multiple times, a cheque that couldn’t be cashed given the bond market reaction to the weakening economy.

Hopes for a trade deal could also pose problematic. Expectations for a “phase one” deal would require both sides to agree concessions on agriculture, intellectual property and technology. The US and China came close to agreeing a deal earlier in the year only to see talks break down and the subsequent imposition of tariffs. China says it is “cautiously optimistic,” but the lack of a deadline and the onset of the US presidential election makes a successful conclusion more unpredictable.

Notable movers – Trailing 30 Days – EUR (€) Denominated Returns
Positive Performers
Positive Performers Trailing 30D (T1M)
EUR (€)
Fitbit Inc. +96.55%
Tiffany & Co. +37.00%
Iliad SA +30.87%
Fortinet Inc +28.69%
Advanced Micro Devices* +25.17%
Negative Performers
Negative Performers Trailing 30D (T1M)
EUR (€)
Twitter Inc.* (27.59%)
Hasbro Inc (21.99%)
TripAdvisor Inc. (20.15%)
Renault SA (18.44%)
World Wrestling Entertainment (17.26%)
Source: Bloomberg, 10th December 2019


This monthly marketing report should in no way be relied upon or substituted for the exercise of independent judgement. Elkstone has taken all reasonable care in the production of this material, but nothing in this note should constitute investment advice in any shape or form. Nor should it be perceived as giving accounting, tax or legal advice. This report is produced solely for educational purposes only. Individual circumstances differ, and readers should not act upon this content in any way. Readers should consult with their independent and regulated professional advisors before making any financial decisions. Prices can fall as well as rise, and may be subject to sudden and sharp moves. If you invest in the stock or other markets you may not recover the total amount originally invested. Historic performance in no way guarantees or indicates future price performance. Further risks to be aware of include currency and exchange rate fluctuations, which may also adversely impact your holdings. The educational information and opinions presented in this report were obtained or derived from sources that Elkstone deems to be reliable, but Elkstone or its related parties (employees, consultants, management, and directors) makes no representations or warranty, express or implied, as to their accuracy or completeness or correctness. Therefore Elkstone accepts no liability for loss arising from the use of the educational material contained within this newsletter.