While the resilience of the global economy had buoyed equity indices in July, they declined in August as long-term yields remained high. Furthermore, the latest macro-economic releases from China were disappointing. Against this backdrop, cyclical stocks and growth stocks sensitive to the Chinese economy underperformed. The technology, mining, travel, industrial and automobile sectors thus gave up more than 5% in August in Europe. However, the Chinese authorities reacted strongly at the end of the month with the introduction of credit support measures, and everything now points to a continuation of the rebound in global economic momentum initiated in September 2022. Should this be the case, the equity asset class could continue to benefit from reasonable valuations (12-month P/E of 13.0x in Europe and 15.0x in the US for the S&P 500 Equal Weight). Especially as inflation continues to fall, pointing to an accommodative reversal by central banks as early as the 1^st half of 2024.

The market decline in August was ultimately significant enough to erase all of July’s gains. Bond yields remained stable in Europe, and the disappointing news on the Chinese economy cast a chill over cyclical stocks as a whole, particularly certain growth technology and industrial stocks that are well represented in the Digital Fund portfolios. Energy has been the only real winner on the markets, supported by oil prices. The more defensive health and real estate sectors are standing out relative to the market. Thus, after three consecutive months of relative outperformance and, despite favourable publications over the summer, the more defensive context of August and lower market volumes left the Digital Stars funds slightly behind their indices over the month. Digital Stars Europe Acc posted a monthly performance of -3.0% compared with -2.4% for the MSCI Europe NR. Digital Stars Continental Europe Acc ended August at -2.9% compared with -2.4% for the MSCI Europe ex UK NR. Digital Stars Eurozone Acc, with a more defensive profile, posted a monthly performance of -1.9% compared with -3.1% for the MSCI EMU NR.

The rebalancings carried out in August were diversified, selecting stocks in the industrial (construction, electrical equipment), utility, banking or food sectors. Among the exits were IT and healthcare stocks. We continue to observe a comeback of British stocks. The overweight of banking stocks in Digital Stars Europe is stable at 6.1%. Digital Stars Europe is also overweight financials, industrials and technology. The fund is underweight healthcare and consumer staples. The UK is now the fund’s top weight at 18.4%, ahead of Italy at 16.2% (still the largest overweight) and Germany at 12.6%.

Digital Stars Europe Smaller Companies Acc ended down -3.9% in August, vs. -2.9% for the MSCI Europe Small Cap NR. Positive publications boosted the retail sector in the fund, but this did not offset the decline in growth stocks, particularly in the IT sector. The monthly portfolio reviews focused on strengthening food and material sectors. Sales were mainly in IT, as well as in industry and finance. The portfolio is still mainly overweight in consumer discretionary, as well as in food, and significantly underweight in real estate. The United Kingdom is reinforced furthermore and weighs now 24.9% (but remains the most largely underweight country), ahead of Italy at 12.9%. Greece is still the most overweight country at 8.9%.

Digital Stars US Equities Acc USD was down -1.7% in August, in line with the MSCI USA NR and outperforming the MSCI USA Small Cap NR at -4.1%. Good contributions from the consumer staples sector and the energy sector, offset the weaker return of our positions in financials and consumer discretionary. The latest monthly portfolio review saw the addition of stocks from the consumer discretionary and media sectors. Sales were mainly in industry and real estate. Of note are significant offsetting purchases and sales in IT and healthcare. The portfolio remains overweight in industry and consumer discretionary. Media is still the biggest underweight, before pharma.

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Equity markets continued to rise in July (MSCI Europe NR +2%; MSCI USA NR +3.4%). A combination of several favourable factors justified the impressive equity rally initiated in September 2022. Economic momentum continued to pick up, as was reflected in significant upward revisions of economic growth forecasts; inflation and inflation expectations have fallen significantly, pointing to the potential for an accommodating monetary stance from central banks in the near future; corporate earnings are reassuring, highlighting attractive valuations for many segments of the stock market; and the level of equity investment by large institutional investors remains low, fuelling buying flows.

The US economy remains robust, with GDP growth revised upwards in July, removing the short-term risk of recession. As a result, cyclical sectors, well represented in the portfolio, outperformed. Banks, energy and basic materials were the month’s winners. Technology lagged, as did the luxury goods sector, impacted by disappointing results from LVMH and Richemont. In this bullish environment, Digital Stars funds are positive and in line with their indices. Performance was influenced by the announcement of half-yearly results, which were generally good. By the end of July, 52% of Digital Stars Europe stocks had published, and 70% of these companies had seen their 2023 earnings estimates revised upwards. These earnings announcements will continue over the next few weeks, which should keep investors focused on company fundamentals, and could once again be favourable to our strategy. Digital Stars Europe Acc posted a monthly performance of +2% compared with +2% for the MSCI Europe NR. Digital Stars Continental Europe Acc ended July at +2% compared with +1.9% for the MSCI Europe ex UK NR. Digital Stars Eurozone Acc, with a more defensive profile, posted a monthly performance of +1.9% compared with +0.9% for the MSCI EMU NR.

The rebalancing carried out in July was diversified, selecting stocks in the industrial, automotive, IT and healthcare sectors, as well as a few financials. Among the exits were basic materials stocks (mainly steel) and luxury goods. We continue to observe a comeback of British stocks. The overweight of banking stocks in Digital Stars Europe is stable at 6.1%. Digital Stars Europe is overweight financials, technology and industrials. The fund is underweight healthcare, food and utilities. Italy remains the fund’s top weight and largest overweight, at 16.4%. The UK moves into second place at 15.7%, ahead of Germany (12.7%).

Digital Stars Europe Smaller Companies Acc ended up +2.1% in July, vs. +3.4% for the MSCI Europe Small Cap NR. Greek stocks continued to perform well. But our semiconductor stocks and consumer discretionary stocks penalised the fund in relative terms. The monthly portfolio reviews focused on strengthening industry and IT sectors, as well as utilities. Sales were mainly in materials (chemicals and glass containers), as well as in finance, energy and consumer discretionary. The portfolio is still mainly overweight in consumer discretionary, and significantly underweight in real estate and materials. The United Kingdom is reinforced furthermore and weighs now 22.0% (but remains the most largely underweight country), ahead of Italy at 13.3%. Greece is still the most overweight country at 8.8%.

Digital Stars US Equities Acc USD was up +2.7% in July, vs. +3.4% for the MSCI USA NR and +5.2% for the MSCI USA Small Cap NR. The good publications of certain stocks were not enough to offset the less well-received publications in the industry. The fund’s under-exposure in the media also contributed negatively. The latest monthly portfolio review saw the addition of stocks from the finance, consumer discretionary and healthcare sectors. Sales were mainly in media, industry and technology. The portfolio remains overweight in industry, as well as in consumer discretionary. Media is now back to being the biggest underweight, before pharma.

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The global economy is surprisingly resilient, and this is reflected in the powerful appreciation of equity indices in June (MSCI Europe NR +2.4%, MSCI USA NR +6.6%). Whereas at the start of the year, the consensus of economists was predicting global GDP growth of +2.0% in 2023, the forecast is now +2.6%. This has led central banks to resume the restrictive rhetoric they abandoned at the time of the banking setbacks. They judge that the battle against inflation has not yet been won, despite the significant fall in inflation in recent months. Against this backdrop, the « Value » style logically stood out in June. Pro-cyclical in relative terms, it is benefiting from the rise in rates across all maturities on the yield curve to resume a trend that began in November 2020, when vaccines were discovered.

The markets therefore ended June on a high note. They seem to have finally assimilated the good corporate results and have resisted the central banks’ less accommodating stance. Fears of a pronounced economic slowdown have eased, favouring cyclical sectors, which are well represented in our portfolios. Banks, specialty retailing and tourism were the winners of the month, while technology took a breather after the rally at the end of May. In this favourable environment, the Digital Stars funds are positive and outperforming their indices. They are benefiting from an overweight in the financial sector and, more generally, from a positioning suited to rising interest rates, being underweight in the proxy bond sectors (healthcare, commodities, telecoms, property). Digital Stars Europe Acc posted a monthly performance of +3.2% compared with +2.4% for the MSCI Europe NR. Digital Stars Continental Europe Acc ended June at +3.8% compared with +2.7% for the MSCI Europe ex UK NR. Digital Stars Eurozone Acc, with a more defensive profile, posted a monthly performance of +2.3% compared with +3.8% for the MSCI EMU NR.

The rebalancing carried out in June was diversified, selecting stocks in the distribution, tourism, steel and banking sectors. Exits included energy, mining and healthcare stocks. British stocks are also making a comeback. The overweight in banking stocks has been increased to 6.7% in Digital Stars Europe. The weighting of the energy sector has returned to the level of its index. Digital Stars Europe is overweight financials, technology and industrials. The fund is underweight healthcare, consumer staples and utilities. Italy remains the fund’s largest holding and its largest overweight, at 15%, ahead of Germany (13.5%) and the United Kingdom (12.9%).

Digital Stars Europe Smaller Companies Acc ended up +3.4% in June, beating the MSCI Europe Small Cap NR at +0.8%. Semiconductors performed very well, as did Greek stocks. Lookers share jumped +34% on the announcement of Alpha Auto Group’s takeover bid. The monthly portfolio reviews focused on strengthening healthcare equipment, IT sectors, consumer discretionary and consumer staples. Sales were mainly in energy, materials (steel and glass) and media. The portfolio is still mainly overweight in consumer discretionary, and significantly underweight in real estate and media. The weight of energy is now in line with the market. The United Kingdom is reinforced and weighs now 18.7% (but remains the most largely underweight country), ahead of Italy which is decreased to 14.5%. Greece is the most overweight country at 8.8%.

Digital Stars US Equities Acc USD was up +8.3% in June, vs. +6.6% for the MSCI USA NR and +8.6% for the MSCI USA Small Cap NR. The month’s outperformance came mainly from industrials, which are well exposed in the fund, and technology. The latest monthly portfolio review saw the addition of stocks from the consumer discretionary, IT, real estate, as well as industry sectors. Sales were mainly in finance.
The portfolio remains overweight in industry. Finance is now the biggest underweight, before media and pharma.

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