Markets

The defining theme for markets in September was undoubtedly the steep rise in government bond yields, coupled with continued tensions in the Middle East and persistent concerns about inflation. Despite the challenging economic backdrop, equity markets proved remarkably resilient. 

In the US, AI once more came to the forefront and the enthusiasm helped mitigate any effects of rising yields and energy prices thus resulting in the wider S&P 500 ending roughly flat and the more tech-heavy Nasdaq 100 ending on a strictly positive note. Across the Atlantic, developments were sourer as growth concerns, higher energy costs and deteriorating fiscal dynamics weighed heavily on equity markets, leading mainland and UK equities to move lower for the month. In Asia, AI helped prop up Japanese and South Korean markets while Chinese equities struggled. 

As previously mentioned, the defining theme of the month was the continued rise in government bond yields. Stronger-than-expected economic data, elevated energy prices and a more hawkish stance from central banks prompted investors to reassess the path of policy rates. The U.S. Federal Reserve delivered its first rate increase in more than three years and signalled the potential for further tightening, reinforcing the view that rates may need to remain higher for longer. Long-dated government bonds were particularly affected. U.S. Treasury yields climbed steadily throughout the month, with the 10-year yield ending above 5.2% and the 30-year reaching its highest level in over two decades. Similar yet more muted moves were observed across Europe and Japan. Market participants increasingly focused on the implications of persistent inflation, large fiscal deficits and growing government financing needs. As a result of the increased rate spreads, the US dollar further strengthened against most major currencies. 

Geopolitical developments in the Middle East, once again, created significant volatility across commodity markets. Escalating tensions involving the United States, Iran and regional actors repeatedly raised concerns about supply disruptions and the future of shipping through the Strait of Hormuz. Brent crude briefly traded above USD 108 per barrel during the month, while European natural gas prices also rose sharply. Towards month-end, expectations of improved energy flows and tentative diplomatic progress helped reverse part of the move, with oil prices retreating below USD 100 per barrel. Nevertheless, energy markets remained an important source of inflation risk and were a key contributor to higher bond yields and tighter financial conditions. 

Brummer UCITS

With elevated volatility and challenging macroeconomic conditions, the BMS programme’s diversifying capabilities once again came to the forefront as alpha was sourced across asset classes. 

The greatest contribution to the portfolio came from the Convexity bucket, where trend-following strategies on developed and alternative markets gained on their short exposure against fixed income and on their long exposure against the US dollar. Minor detractors came from positioning in credit and equities.  

The fixed income & macro bucket contributed positively to the portfolio as relative value positioning in fixed income and FX were lightly offset by detractions owed to long positioning in EU government bonds. 

The long/short equity bucket ended flat for the month. In US TMT, gains could primarily be attributed to positioning in softwares, commercial services and media & entertainment names while positioning in some names in fintech, automobile and real estate platforms detracted. Among global healthcare names, gains in household and consumer products were offset by losses in pharmaceuticals, biotech and life sciences. In listed real estate, profitable positioning in North American names were outweighed by losses in mainland Europe and Asia. European financials saw gains in insurance and financial software erased by losses in banking and financial services.

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