April was yet another good month for our funds: SFRR reports MTD returns of +3.05% (+2.25% YTD), SFPG posts +5.27% (+6.61% YTD), and SFQS was up +3.8% (+12.05% YTD).
The style and sector rotations that had begun on February 15, and continued throughout March, dwindled away in April, while our Quality-Growth universe of shares is still beating all expectations. Chosen companies must have an attractive past, present, and future growth record. This condition eliminates from our radar companies whose valuations are based exclusively on future expectations; the future must be bright, but past and present performance must sustain our investment decisions.
We have found that increasing the cyclical component of our portfolios, while not losing track of the essential profit bearing factors, is very helpful for returns.
This month, we have been agreeably surprised by Alphabet and Facebook (Sigma Fund Quality Stocks). Both companies’ earnings are generated by advertisements, a clearly cyclical segment. Alphabet was up 14.10% in April, and Facebook reports a 10.37% rise as well. These companies’ extraordinary capacity to innovate and purchase businesses that will contribute to their growth has boosted them to the leadership of niches such as self-driving cars (purchase of Waymo by Google) and virtual reality (purchase of Oculus by Facebook).
The Prudent Growth portfolio is also invested in companies with a remarkable post-Covid potential, such as Vitrolife (please see the Sub-fund’s commentary for full details). Vitrolife is a world leading assisted reproduction company; demand in this sector has been hurt by the pandemic, but it is expected to recover rapidly going forward. Vitrolife posts a 25.1% increase this month. Semiconductors, the 21st Century’s oil, are also present in our investment themes. China currently spends more on chips than on oil, and strategic investments both at a company and country level are being fostered to guarantee supply in critical areas such as defense and sectors that are vital for employment (auto).
In the Momentum Stocks strategy, Medifast, a company that sells dietetic products and advocates for healthy habits, stands out. It has risen 7.02% in April – it has not registered the largest rise in price, but it is one of the companies that has gained the most momentum in the recent months.
Regarding hedging strategies, we gradually increased the level of protection in the portfolios as markets approached maximums. The portfolio is currently hedged at 60% and we have increased the margins of variability in options strategies.
We currently maintain a structurally long position in USD, with a dynamic management of currency fluctuations, which enables us to systematically capture returns.
The market’s “temperature” has remained low throughout April which has allowed the Tactical strategy to remain actively invested, thereby adding to the returns obtained by the rest of our strategies.
We face May and June with caution, volatility during these months is quite usual, and corrections are also frequent. Although this year’s outcome will be more influenced by the dynamics of the economic recovery than by the historic seasonality of markets, we must remain vigilant. We do not expect large downward movements in markets, but we do expect some corrections that will provide an opportunity to reposition portfolios and benefit from the hedges we have been gradually increasing in the past.