The Fund returned -3.3% in June, with realized volatility of 10.8%. During the month, the MSCI World index lost -2.7% in EUR, the JP Morgan global government bond index lost -1.1% in EUR and the GSCI commodities total return index actually gained +0.1% in EUR.
World government bonds continued selling off in June. We do not think that this is the beginning of the much awaited bond bear market and we continued adding German bunds and started re-building our Italian bond position.
Eurozone banks were a costly position to hold in June, as shown by the negative performance of our equity sector strategy. Falling bond prices are bad for banks who tend to have a natural maturity mismatch between assets and liabilities. There is also a negative trend towards holding equity and bond holders more accountable for banking losses. On the positive side, the valuation of the banking sector is attractive, the yield curve is very steep, a big positive for banks, and the ECB stands ready to help.
After a 22% correction, Japanese equities are finding a bottom. The BOJ intends to double the money base within two years, after an equity bear market that lasted for more than 20 years. The price to book ratio of equities had reached their lowest level in more than 40 years shortly before QE started. The Nikkei has only rallied 31% in USD since its bottom in November 2012, providing further ample upside.
We remain cautious on German and French equities, as a hedge to our Japanese equity exposure and because the Eurozone will continue delivering sporadic scares.
Even a small position in gold miners was dangerous to hold in June. The commodity strategy lost 0.4%, despite an exposure to gold miners of only 1.7% as of June end.
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