European equity indices stood out again in February (MSCI Europe NR +1.8%), unlike the US indices (MSCI USA NR -2.4%). The spectacular upturn of China after the sudden withdrawal of the zero covid policy is having a positive impact on many European heavyweights. Moreover, the rise in interest rates tends to favour the most « value » geographical area, i.e. Europe. The improvement in economic momentum, linked to the reopening of the Chinese economy, is reflected in the economists’ consensus, which has recovered strongly. Eurozone GDP growth in 2023 is now forecast at +0.4% compared to -0.1% only 2 months ago. The same is true for the US, where GDP growth in 2023 is now forecast at +0.7% compared to +0.3% at the end of December.

Digital funds continued to rise in February, outperforming their benchmarks. Sector bets contributed positively, with overweight positions in energy and banks benefiting from higher interest rates. The portfolios also benefited from positive surprises on stocks announcing their results. Thus 73% of Digital Stars Europe stocks that reported earnings had their 2023 earnings estimates revised upwards, compared with only 46% of MSCI Europe stocks. The decrease in risk aversion has allowed a re-correlation between company news and performance, which is very favourable to our strategies. The stocks in the fund, that saw their 2023 outlook improve as a result of their announcements, achieved an average YTD return of +15.7%, compared to +2.2% only for those that were revised downwards. In this favourable environment, Digital Stars Europe Acc posted a monthly performance of +3.8% against +1.8% for the MSCI Europe NR, and a YTD performance of +9.2% against +8.7%. Digital Stars Continental Europe Acc ended February at +3.9% against +1.5% for the MSCI Europe ex UK NR. Digital Stars Eurozone Acc achieved +4.3% against +1.6% for the MSCI EMU NR.

February rebalancing reinforces the cyclical bias of the funds. Thus, we have integrated stocks in the financials, basic materials, industrials and consumer discretionary sectors. Exposure to Energy (especially alternative energies) is slightly lowered, as for paper products and fertilisers. We are also selling defensive stocks in the consumer staples and cosmetics sectors. Digital Stars Europe is overweight financials (11%), energy (4.6%), and industrials (3.4%). The fund is underweight in healthcare (11.8%), consumer staples (9.5%) and utilities (1.5%). Italy remains the fund’s largest weight and largest overweight, at 17.1%, ahead of the UK (the most underweight country) at 13.4% and Germany (12.9%).

Digital Stars Europe Smaller Companies Acc ended up +6.0% in February, strongly outperforming the MSCI Europe Small Cap NR at +2.8%. The fund mainly benefited from good publications on companies active in energy storage and transportation, and on banks. The monthly portfolio reviews focused on strengthening consumer discretionary, materials and banks. Sales were mainly in industry, as well as in more defensive sectors linked to renewable energy (utilities, energy) or health care. The portfolio remains overweight in energy, banks and consumer discretionary, and significantly underweight in real estate, as well as IT and pharmaceuticals. The United Kingdom (the most largely underweight country) is now tied with Italy (the most overweight country) as the largest country weight at 15.9%, ahead of Denmark at 12.2%.

Digital Stars US Equities Acc USD was up slightly by +0.7% in February, in a falling market where the MSCI USA NR ended at -2.4% and the MSCI USA Small Cap NR at -1.8%. Capital markets stocks, consumer staples and consumer discretionary contributed very positively to the fund’s outperformance. The energy sector (-7% return in the US market) contributed negatively, due to its overweight. The latest monthly portfolio review strengthened IT and healthcare, as well as finance. Sales were mainly in consumer discretionary, as well as communication services, energy and materials. The portfolio remains overweight in finance and industry, and underweight in media, as well as pharmaceuticals and IT.

Read the associated document

“Chahine Capital’s algorithms revisit each month the investment case of more than 1,500 european stocks,” states Charles Lacroix, CEO of Chahine Capital. He tells us about the technology that supports the company activity.

Read the associated document

Equity indices rose strongly in January (MSCI Europe NR +6.8%, MSCI USA NR +6.5%), extending the powerful rebound that began at the end of September 2022. There are many reasons for this increase. Inflation is falling faster than expected, which argues for a forthcoming easing of monetary policy, and China has abandoned its « zero covid » policy, which suggests a recovery in the global economy. It is therefore logical for equity indices to recover, especially as valuation was at a deep discount and investors were underinvested, according to sentiment indicators.

This prospect of « disinflation » led to a bullish rally in the first few days of January, concentrated on stocks which were negatively-sensitive to inflation and had been oversold in 2022. This rebound, fuelled by low momentum stocks, was only partially followed by Digital Funds despite a good sector allocation (overweight banks, industrials and technology). The second half of the month was more favourable to our strategy, which benefited from positive surprises on stocks announcing their results (Banco de Sabadell, Unicredit, SSAB, TGS, PGS, ASMI, etc.) and from exposure to banks. The improved visibility of central bank action, the decline in the level of macroeconomic uncertainty, and the upcoming intensification of corporate earnings announcements should allow a return to fundamentals in the markets. Along with a re-correlation of corporate earnings and future prospects with their stock market performance, these factors could lead to a favourable environment for stock picking by Digital funds.

Digital Stars Europe Acc posted a monthly performance of +5.3% against +6.8% for the MSCI Europe NR. Digital Stars Continental Europe Acc ended January at +5.6% versus +7.5% for the MSCI Europe ex UK NR. Digital Stars Eurozone Acc achieved +6.4% versus +9.6% for the MSCI EMU NR.

Rebalancing in January continued to strengthen banking stocks. Financials have thus seen their weighting increased by 4.5% in one month and become the most overweight sector in Digital Stars Europe (26.5% against 17.4% in the MSCI Europe). We have also added some industrial, technology and commodity stocks. Exposure to Energy has decreased slightly. We are also selling defensive stocks in the food and healthcare sectors. The cyclical bias is reinforced. Digital Stars Europe is overweight financials (9.1%), energy (5.6%), and industrials (3.5%). The fund is underweight healthcare (11.2%), consumer staples (8%) and consumer discretionary (2.4%). Italy remains the fund’s largest weight and largest overweight at 16.6%, ahead of Germany (13%) and the UK (the most underweight country) at 12.5%.

Digital Stars Europe Smaller Companies Acc finished up at +1.2% in January, underperforming the MSCI Europe Small Cap NR at +7.4%. Stocks linked to energy transportation, the champions of the end of 2022, turned sharply downwards, preventing the fund from taking full advantage of the rebound in small caps. The share price of PNE lost 22% in just two days, following the decision of its main shareholder to finally abandon the sale of its stake.
The monthly portfolio reviews focused on strengthening financials, especially banks. Sales were mainly in IT and utility sectors, as well as in energy and healthcare.
The portfolio is significantly overweight in energy and industry, as well as in banks, and underweight in real estate, IT and pharmaceuticals.
The United Kingdom (the most largely underweight country) is still the largest country weight with 16.2%, ahead of Italy (the most largely overweight country) at 15.0%, and Denmark at 10.9%.

Digital Stars US Equities Acc USD rose by +6.3% in January, vs. +6.5% for the MSCI USA NR and +10.4% for the MSCI USA Small Cap NR. The underweight in healthcare, as well as the remarkable performance of some consumer staples (Inter Parfums) and industrial (CECO Environmental, MRC Global) stocks, helped to offset the underperformance of the regional banks held in the portfolio.
The latest monthly portfolio review strengthened once more the consumer discretionary sector (retailing), as well as steel, food and energy (equipment). Sales were mainly in industrials and finance, as well as communication services.
The portfolio remains overweight in finance and industry, and underweight in pharmaceuticals, as well as media and IT.

Read the associated document