October showed general optimism for global equity markets, particularly developed markets as the MSCI World Index rose +5.6% (local) and S&P 500 climbed +7.0% off the back of a strong US earnings season and relatively low volatility. We are nearly half-way through the Q3 2021 results season, with 45% of companies having reported in the US and 44% in Europe. Earnings growth is sequentially lower this quarter due to decelerating activity momentum. Delivery continues to beat initial consensus expectations, though by a smaller magnitude than in recent quarters. Energy, Materials and Industrials are recording particularly strong earnings growth. The 10-year Treasury rose nearly 20 basis points, driven by a Fed meeting that seemed to bring tapering one step closer, perhaps even accelerating the timeline to a rate hike as well.
The State Street Global Equity Fund underperformed the MSCI World ex Australia Index during October. From a sector perspective: good stock picking within Health Care and Real Estate were key contributors. On the other hand, negative stock selection within US and Japanese IT, Communication Services and Japanese Industrials were key detractors. Despite rising bond yields on the short end, concerns about slowing growth, ongoing supply chain disruptions and strong earnings results from US growth names created some headwinds for cheaper stocks that looked more attractive on value measures.
During the month, we increased our allocation to Health Care through select biotech and service providers. At the same time, we have reduced our relative overweight to Industrials by taking some profit in a Japanese marine shipping company - Nippon Yusen Kabushiki Kaisha.
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