Elkstone Investment Services Monthly Bulletin

Investment Services November 2019


Paul Gorman, Portfolio Manager


Equities have regained momentum versus Bonds as geopolitical concerns ease and the Fed delivers a third rate cut.


Paul Gorman is Chief Investment Officer at Elkstone

The Market – Latest Dynamics 

October witnessed reduced geo-political tensions and more constructive prospects for a resolution to the US/China trade talks. In addition, global central banks re-affirmed their accommodative approach which encouraged a pro-risk appetite. In this more market friendly environment the S&P 500 gained +2%, the Eurostoxx 50 was +1% and the MSCI Asia Pacific rose +4.3%. Fixed income markets were a little weaker and 10YR US Treasury yields rose 10bps to 1.75% and German 10YR Bund yields increased from -0.6% to -0.4% over the month. The reduced likelihood of a no-deal Brexit resulted in a rally in the depressed GBP which gained +5% vs USD and +3% vs EUR.

Market Performance Returns – EUR (€) Denominated
Name Year to Date
Trailing 30D
October 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, 15th November 2019
Elkstone Global Equity Strategy

The Strategy returned -1.66% compared to a representative global equity index +0.07%. YTD the Strategy is +24.92% compared to an index return of +26.67%. A resumption of the rotation away from previous market leaders towards more cyclical/value names, and some specific Q3 earnings misses, contributed to the weaker relative returns in October. During the month, we reduced sector exposures to Technology, Consumer Staples and increased Communications and Consumer Discretionary.

Elkstone Observations

US equities have regained momentum against Bonds as shown in the chart below which plots the performance (White Line) of the S&P 500 equity index, relative to the largest ETF, offering exposure to the US Bond market (TLT). The S&P has powered to new all-time highs above the 3,000 index level, and the relative recovery versus bonds has coincided with an easing of geopolitical and trade war fears and a slight improvement in US economic releases.

Source: Bloomberg

Real US GDP for 3Q at 1.9% YoY was in-line with forecasts, and employment numbers remain robust even if manufacturing still indicates trade-dependent weakness. Signalling that monetary policy is “in a good place”, the Fed delivered its third interest rate reduction this year taking US rates down to 1.75%, and money market expectations are now aligned on one final reduction in 2020.

The Q3 earnings season is now largely complete. While better than the downward revised estimates, the average Q3 reported decline in earnings was -2.4% and contributes to a three quarters run of year-over-year declines. The full year 2019 outcome is now expected to show 4% revenue growth with zero EPS growth. This leaves the 10% consensus earnings growth from 5% revenue growth for 2020 looking a little optimistic (Source: Factset).

European economic releases have remained weak with Germany in particular highlighting the impact of the decline in international trade. Manufacturing and now labour and consumer indicators point to the effects of the slowdown. Mario Draghi signed off his term as President of the ECB and the challenge for his successor, Christine Lagarde, will be to encourage the adoption of expansionary fiscal policy. The ECB’s monetary ammunition is largely spent with interest rates already negative and quantitative easing of EUR 20bn re-introduced.

The long-running UK Brexit saga while as yet unresolved, de-escalated somewhat with political interventions removing the markets least favourite “no-deal exit” scenario. UK economic releases during October pointed to the impact of the ongoing uncertainty on employment and consumer confidence.

China reported Q3 real GDP annualized growth of 6%, a slowdown from the previous quarters 6.2% highlighting weaker exports and imports. The slower pace of growth has prompted the PBOC to loosen monetary policy producing a second 0.5% cut in the reserve requirement ratio with a third likely to follow.

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, 15th November 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.