The first quarter ended positively for stocks. Our strategy returned +14% for the quarter, beating the +8% return of the MSCI World index by 6 percentage points.
This performance was achieved despite our style being out of favour. Value stocks ($VTV) returned a negative -1% for the quarter, weighed down by the Financials and Energy sectors. Growth stocks ($VUG), by contrast, were helped by lower interest rates and their oversold condition after a 30% fall in 2022, and returned +17%.
We see the trend of relative Value/Growth performance reversing in the second quarter.
Value stocks tend to outperform if the Financials and Energy sectors do well. Financials were hit in the first quarter by the collapse of Silicon Valley and Signature banks. It appears that the banking crisis has now been contained to only a few companies. If worries about the banking system recede and the economy holds up, banks could bounce back after a 10-20% fall in March.
Energy companies performed poorly in the first quarter because oil prices fell. This appears in part have been due to an unwind of speculative positioning in oil futures. Yesterday, OPEC announced they are cutting oil output, as a result of which oil prices jumped 5%. If the oil price holds up at current levels, Energy companies look too cheap.
It appears that despite last week’s rally, investor sentiment remains depressed, which could fuel further gains at the index level. Seasonality, too, is very positive in April.
Overall, we are bullish on the market for the next month. Beyond that, we continue to hold to a cautious view because the yield curve is heavily inverted, which has historically preceded severe market crashes.
AstraZeneca, Bank of America, Allianz, AXA and Telefonica Brazil were sold. They were replaced by ING, Assurant, Suncor, Prudential and Bankinter.