Upturn still elusive despite recent rallies

By Renaud Froissart, fund manager at Quaero Capital

The systematic analysis used by Quaero’s European Long Short Equity fund has thrown up bearish indicators in the last two months, but since launch in 2014 the fund has still outperformed its benchmark HFRX Equity Hedge EUR Index.

Two complementary processes shape the portfolio composition. The first of these, capturing the price momentum of the companies within its investment universe, is currently at the lowest of five possible levels. The second indicator is the average market score of the 1,500 European stocks included in the fund universe. Since September this score has consistently trended lower, from a level of 6.7 to 6.4 now.

The implication is that there is little near term positive price action expected despite recent stock market rallies, which have only served to make stocks more expensive. Further, company valuations are not improving, which can mostly be attributed to the lack of upward earnings revisions.

Over the month, the Fund’s net investment rate has been 0% (50% Long stocks, and 50% Short Eurostoxx 50 futures), reflecting our view that European equities offer potential over the long term, but that the optimum market conditions to go net Long have not materialised.

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