Elkstone Private Monthly Bulletin

Investment Services May 2019


Paul Gorman, Portfolio Manager


Global equity markets have continued the strong start to 2019 but still display signs of nervousness.

Paul Gorman is Chief Investment Officer at Elkstone Private


The Market – Latest Dynamics 

The backdrop of supportive Central Bank policy, expectations of a recovery in Chinese growth and ongoing hopes of a successful US/China trade deal have supported the very strong YTD performance in equity markets.

Most asset classes have recorded their best Q1 in recent years. The primary factor behind the sharp recovery in market sentiment has been the significant change in expectations around inflation and interest rates with markets now focused on the potential for rate cuts in the US in 2020. This has led to a sharp rally in global bond markets with the US yield curve reaching close to inversion with longer dated yields falling below those on shorter maturities. The strong bond market rally saw 10 year European bond yields retreat again into negative territory.

As we progress through the Q1 US reporting season earnings forecasts had been cut markedly but the results have generally met or exceeded expectations. Within the equity market we have seen a continuation of the outperformance of cyclical vs defensive sectors. US economic growth remains robust but the boost from previous years tax cuts is fading. The October extension granted to the UK by the EU has eased but not removed headline Brexit risk


Market Performance Returns – EUR (€) Denominated


Name Year to Date
Trailing 30D
April Return FY 2018
EUR (€) EUR (€) EUR (€) EUR (€)
Elkstone Global Equity Strategy +16.91% (2.57%) +4.35% +1.16%
db x-trackers MSCI AC World ETF +16.33% (1.86%) +3.28% (6.20%)
U.S. – S&P 500 +17.56% (2.01%) +3.97% (6.24%)
Europe – Eurostoxx 600 +13.20% (2.33%) +3.23% (13.24%)
Gold +2.33% (0.01%) (0.65%) +3.11%
WTI Crude Oil +40.01% (2.56%) +6.31% (24.84%)
Source: Bloomberg, 08th May 2019


Elkstone Global Equity Strategy

During April, the Strategy gained +4.35% compared to the +3.28% return for the MSCI World in EUR. This continues the strong YTD performance in which the Strategy is +19.99% (up to the end of April). It is +1.45% ahead of the MSCI World return of +18.54%.

Performance during April was driven by Technology and Industrials with weaker returns in Healthcare and Financials sectors. During the month we increased Healthcare Equipment and Business Services and reduced Aerospace and Healthcare Providers sector exposures.


Elkstone Observations

The widely watched yield curve inversion attracts substantial commentary as it has historically been viewed as an indicator of impending recessionary conditions. While economic indicators suggest some slowing in GDP growth (Blue Line) overall levels remain robust and has been associated with the reversal in interest rate expectations. Probably more significant is that Real Yields in the US, as seen from the performance of Treasury Inflation Protected Securities (White Line), have fallen significantly since the turn of the year.


Source: Bloomberg

As noted above the falling inflation and interest rate expectation to date in 2019 have fostered a very healthy market environment. The table below shows that it has been one of the strongest Q1 in over 20 years in some markets.

Source: Bloomberg

The falling inflation and interest rate expectations to date in 2019 have fostered a very healthy market environment producing one of the strongest January-April starts across asset classes in 20 years. The fall in Real Yields, which is the “real time” discount rate for financial markets, helps validate the ongoing attractiveness of Equities v’s competing asset classes particularly Fixed Income. This is evident in the US where there has been significant inflow into Equities (Red Line). However, despite the strong YTD +15% returns seen across many market, we continue to see strong flows out of Equities in Europe (dark Blue Line) and Emerging Markets (Light Blue Line). These markets may find support at current levels should this negative flow-headwind ease

Notable movers – Trailing 30 Days – EUR (€) Denominated Returns
Positive Performers
Positive Performers Trailing 30D (T1M)
EUR (€)
Walt Disney +18.24%
Monster Beverages +17.03%
Adidas +14.15%
G4S PLC +13.96%
Twitter* +11.44%
Negative Performers
Negative Performers Trailing 30D (T1M)
EUR (€)
Ipsen (18.84%)
3M Co (16.36%)
Imperial Brands PLC (14.38%)
ArcelorMittal (10.45%)
Vertex Pharmaceuticals* (9.92%)
Source: Bloomberg, 08th May 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.