October lived up to its reputation being a difficult month


October once again lived up to its reputation for being a complicated month in the stock market, with the Fund loosing -7.39% during the month. More globally, the S&P declined on 16 out of 23 days, leading to a 6.9% loss in the US, shedding nearly $5Tr worth of collective market cap.

T​aken together, one can argue this was one of the worst months for stocks in the post-crisis period; notable comparisons would be May/Jun ’10, Aug/Sep ’11, Aug ’15 and Jan ’16.

According to the Investment Adviser, this shakeout had three primary drivers: (1) the jump in US rates early in the month, (2) a sharp de-rating of the market’s implied growth view and (3) a very significant risk reduction by all market participants – encompassing systematic and discretionary, professional and retail investors.

That said, in the post-war history of financial markets, it’s very rare to have a bear market without a recession. Along the same lines, BNP Exane advised that the 7.3% correction in Europe makes October the 26th worst month for Global Equities since 1970. According to BNP Exane, after such a decline and without the occurrence of a recession, median returns over the subsequent 12 months have been 24%, with a 100% hit rate.

 Goldman Sachs anticipates a 7% EPS growth for the S&P in 2019 and 5% in 2020, with no recession in sight even if a slowdown appears visible, reinforcing the Investment Adviser’s conviction depicted in last month’s commentary that stock picking should make its long awaited come back.

According to the Investment Adviser, individual stock commentaries are far less relevant in a month characterised by a total absence of discrimination, however the team would still like to highlight various facts:

Two positions contributed positively to the Fund’s performance in October: Valmet and Ferronordic Machines. Even in the context of very turbulent market conditions, Valmet continues its upward movement, with its fifth consecutive monthly gain, always backed by a strong order intake momentum, and improved margin quality of the order book that should translate into positive results during the coming years. Ferronordic Machines, the distributor of Volvo’s construction machines in Russia, benefited from the anticipated rebound in infrastructure spending in Russia as part of Putin’s political program to revitalise GDP growth.

At the other end of the spectrum, Spie, Albioma and Brembo were the 3 main detractors, with no specific negative news to be mentioned. The Investment Adviser’s reading is that Spie and Albioma were both penalised by their level of indebtedness, while Brembo suffered simply from being an auto supplier. According to the team, Brembo is and will be a good example of stock picking in the coming quarters. When a sizeable number of auto suppliers reported profit warnings in the wake of Q3 results, with China and the WLTP (worldwide harmonized light vehicles test procedure) regulations in Europe as the main culprits, Brembo published a 12.9% organic growth in Q3, with China up close to 10%. The Company’s expectations for Q4 stand at 7% growth, compared with 11.5% in Q4 17. Putting all companies in the same basket is, and will remain a source for sizeable opportunities for future performance.


The views and statements contained herein are those of Pascal Investment Advisers SA in their capacity as Investment Adviser to the Fund as of 12/10/18 and are based on internal research and modelling.

Please contact info@eisturdza.com should you wish to have an update call with the investment team.

Further insights

November 2018

October turmoil

As stated in the previous commentary, the Investment Adviser is still positive regarding equities’ short term potential to regain ground, but is cognizant that this scenario requires some positive developments on the international front and the economic backdrop to remain healthy.
November 2018

Japanese companies have strength to deliver profits

In October, the market declined due to rising interest rates in the US and increased fears about a future deterioration of the US and global economy. The market fell after the US market plummeted following the release of weak housing statistics amid a worrying quarterly earnings season.