November saw extreme rotation in equity markets following the announcement of Pfizer’s efficacy data for its Covid-19 vaccine. The speed of reversal away from Covid-19 beneficiaries and towards ‘reopeners’ was brutal; the kind of factor rotation that has only been witnessed once or twice in the last 20 years. Although we saw some initial relative performance pressure in the early part of the month, we bounced back strongly in the second half of the month after having made some significant positional changes. Overall, this was a negative month for performance.

Our best performing positions included Telecom Italia, IAG and Unicredit. The fact that our best performers included two of our worst performing positions year-to-date (Telecom Italia and Unicredit) and a new position that we bought to benefit from a reopening of the global economy (IAG) shows how skewed the factor performance was this month. IAG for example rallied 61% in anticipating of a better travel environment once the vaccine has been rolled out.

As you may expect, our worst performing positions were some of our highest quality growth companies and this included Cellnex, Embracer and Vivendi. All three companies, as well as being regarded as high quality, defensive companies were also clear Covid-19 beneficiaries and so it is not surprising to see them sell off during a period of such intense rotation.

In October, as previously reported, we had started to make some shifts in positioning, aiming to take advantage of what we saw as overly-depressed valuations in some companies that we deemed to have been heavily impacted by Covid-19; this had included initiating new positions in IAG and Faurecia. We continued to trade in a similar direction in the early days of November, adding to existing holdings in banks (via Unicredit and Bawag) and oil (via positions in Total). Taken in totality, these trades have worked well so far and have benefitted performance, enabling us to regain much of the performance that we lost in the days immediately following the Pfizer vaccine announcement. Our positioning is now much more balanced than it was two months ago.

We are confident in our positioning and 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.