There has been a very strong factor rotation to start the year with a significant rally in value at the expense of growth. In January, with MSCI Europe returning -3.17%, MSCI Europe Value gained 2.74% whilst MSCI Europe Growth lost 8.93%. This 11.66% underperformance of growth proved to be a headwind to our performance, and we underperformed during the month.¹ This was obviously disappointing, but given our growth-biased strategy, we are unsurprised by our performance in this context. We are certainly less exposed to growth than we were 12-18 months ago, and this has limited the damage to performance so far this year.

In the context of this factor rotation, our stock-level attribution is fairly predictable. Our growthiest names hurt us the most, with Allfunds, Cellnex and Delivery Hero our biggest detractors. At the same time, our less expensive companies provided some protection; Total, Munich Re and Arkema were amongst our strongest performers. It is worth nothing that our decision to buy Total and Arkema towards the end of 2021 provided some protection in the rout in growth that we have seen so far this year. We have not really traded much so far this year but are starting to focus on some of our Growth/Quality names that have derated heavily; it is likely that we will look for opportunities to increase our exposure to this part of the portfolio (and potentially via new positions too) if the terrible environment for Growth/Quality continues.

We will continue to retain balance in our exposures by considering two types of business for investment; those where we see high and sustainable returns that are undervalued by the market and those companies where we can see a material improvement in medium term business prospects.

¹Source: Bloomberg, as at 31/01/2022

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