After a strong start to the year, there was a dramatic turn of fortunes during May in what proved a very difficult month for global equity markets. While macro data continues to suggest slowing global growth, much of the current perceived risk in financial markets appears driven by few financial indicators, as the unfolding economic conflict led to a return of recession fears.
In Europe, elections were in focus, though there were no surprise outcomes. The second estimate of Eurozone quarterly GDP growth was confirmed at 0.4%, with consumption and investment making positive contributions. However, sentiment indicators and PMI readings were more mixed.
There were few hiding places as the majority of countries saw negative returns during the month. Cyclical industries were hit especially hard, notably resources and industrials. Conventional defensives saw relative outperformance, which extended to other safe haven assets. At the country level, there was a wide divergence in performance, as illustrated between the resolute Swiss market and Italian equities, which suffered most. From a style perspective, value stocks underperformed, while low beta and quality stood out.
For the L&G European Trust, the fund delivered a negative return of -6.2%. Stock selection and sector allocation were both detrimental to performance. By sector, selection in tech hardware, basic materials and consumer goods was the biggest disappointment. The portfolio’s underweight allocation in healthcare and utilities was also unhelpful. At the country level, selection and positioning in Switzerland detracted most value.