Market Commentary June 2023

Inverted yield curves, high inflation as well as purchasing managers' indices reported well below 50 in the industrialized world are clear signs of a recession. The stock market seems to be sure that the missing productivity can be realized in a very short time by means of artificial intelligence (AI).

The hardware for AI produced by Nvidia & Co. already exists. The development of machine learning, on the other hand, is still in its infancy. Expecting a short-term productivity boost from AI is therefore exaggerated in our view.

The euphoria of AI has helped growth stocks to soar but has ultimately also led to exaggerated valuations. Not surprisingly, European value stocks are now available again at a historic discount.

Measured by the price/book ratio, value stocks are valued 4x cheaper than growth stocks. The statistical probability that this remains the case is just 0.15%! In addition, value stocks pay a 5x higher dividend than growth stocks. This raises the question of risk/return preference: A bird in the hand or two in the bush?

Holdings

Tops

Aurubis AG shares (+9.9%) benefited from a rise in copper and iron ore prices. The reason for this was the news that China is considering a broad package of economic stimulus measures to revive economic growth.

The new head of Fresenius & Co. SE, Michael Sen, is leaving no stone unturned, making far-reaching changes, and sending out clear signals. Fresenius Medical Care will be converted into an AG and removed from Fresenius' balance sheet by the end of the year. The shares of Fresenius Medical AG gained +9.6% over the month.

Serco Group Plc's equity securities rose +9.6% after it raised its profit forecast on robust demand for immigration and defense services in the United Kingdom and the Americas.

Flops

Aware of macroeconomic headwinds for U.K. real estate developers, we hold only half a position each in Persimmon Plc (-14.6%), Bellway Plc (-12.0%) and Taylor Wimpey Plc (-10.0%).

Notorious excess demand is the reason why English real estate developers remain invested despite adverse macro circumstances. England needs 245,000 housing units each year to meet demand. In 2022, completions were below the three-decade peak of 2019 (177,900). Nevertheless, construction volumes may decline in 2023 due to rising interest rates, high construction costs, slowing economic momentum, and subdued home prices. By 2031, however, there will be an estimated shortfall of 2.5 million housing units in England, and as many as 700,000 in London.

Please do not hesitate to contact us if you have any queries regarding the fund.

Sincerely

Your CIIM Team