Markets (prior week): SPX -0.47%, RTY +2.00%, NDX -0.79%, UKX -1.76%, SX5E -2.19%, SMI +0.49%, NKY -4.03%, TPX -2.46%, HSI -4.52%, Brent +6.85% to $117.38, Gold -4.07% to $3,996/oz, Silver -5.44% to $53.89/oz, Bitcoin +0.6% $81.4k, VIX -2.7% to 19.45pts (peaking Friday at 20.66).
Equities:
Global equities finished the week mixed as investors heavily sold the AI trade amid concerns of growth losing critical momentum and a turbulent week for oil prices (+12% last 2 weeks). Markets rotated away from growth shares, into Small-caps (+2% vs large cap +0.4%) and Value stocks (+0.7%) as the recent bond market sell-off continued to ease.
US equities saw the NASDAQ fall -0.8% on the week (following a -4.5% fall last week), SPX fell -0.5% whilst the more rate sensitive Russell2000 was +2%. At a sector level Energy continues as best performer (+56% ytd, +5% week) followed by Tech, whilst a good way to play the broadening of leadership has been Healthcare, Staples (both +16% ytd) and Materials (+14% ytd).
META (Rev beat, EPS miss) and TESLA (Rev miss, softer margins)delivered mixed Q3 results, with Tesla pulling back on robotics/AI spending, whilst Meta signalled aggressive AI spending. Stock reactions diverged widely with Tesla +4.9% and Meta falling -9.4%.
Europe was negative across the board with the STOXX 600 falling -1.39% as risk sentiment was hit by political turmoil in France (widespread looting), and fears of EU credit contagion as 10yr OATS yields hit 5%. Earnings seasons continued mixed with energy companies outperforming estimates but Luxury names disappointing. Germany’s DAX ended -1.72%, France’s CAC 40 -2.19%, and Italy’s FTSE MIB -2.60%, whilst the FTSE 100 Index was -1.76%.
In Asia,Japan had a poor week with N225 -4% and the broader Topix -2.5% following the US lead lower in AI / Semi / Memory names. JGBs fell back from recent highs with 10yr JGBs at 2.78% (falling 16bps WoW). China followed a similar pattern with the CSI300 -1.6% and the HSI -4.5% with selling in internet and Bio-tech sectors whilst Banks remained more robust.
Other Assets:
Bond Markets saw government and corporate yields continue to soften from recent multi decade highs. The UST 10yr fell below 5% for first time in a month (peaking recently at 5.34%), Gilts also fell back below 5% back in advance of Healey’s first UK budget on Wednesday. French Govies (OATS) continued to move wider, hitting 5% and the widest spread vs Bunds since 2012.
Precious Metals saw Gold prices drifted lower to $4,027/oz whilst Silver performed strongly up 12% on the week.
Currency Markets saw USD flat on the week versus a basket of world currencies, as recent strengthening has run out of momentum.
Energy markets had another choppy week trading in a wide range, with WTI crude falling below $100/bl mid-week but then spiking back above $103/bl on Friday, despite signs of increased glows making it out of the ME region.
Macro:
US: saw continued pressure on the Housing market with the Housing Market index falling 3pts and homes Sales -7.3% MoM – to its lowest level since 2001. Labour data held up (Jolts +194k, -6k vs est.). The Fed looks likely to Hold in Oct (Wed) with a 90% implied futures probability of a 25bps hike in Nov.
Europe: the widespread civil unrest and fiscal strain in France took centre stage, amid difficult long term budget negotiations. EU data indicated a slower growth trajectory (PMI fell 1.2 to 51.9 MoM) and the ECB consumer survey showed widespread expectations of higher inflation readings.
UK: saw the UE rate fall to 4.7% (-0.2% MoM), but inflation hit 3.5% in Sep (highest in a year) and data now points to further hikes needed by the BOE – expect +25bps on Nov 5th.
Japan: Saw strong demand for 20yr JGBs helping to ease back overall yields. CPI was 2.3% YoY (+0.4% MoM) and 1st reading above 2% target since Dec25, expect a BOJ raise +25bp in Nov.
China: GDP picked up (+4.5% YoY, +0.2% MoM). Industrial production rose +5.5% YoY, as well as Retail sales +1.1%. The stronger GDP may soften calls for broader fiscal stimulus.
Fundamentals
This is the busiest week of US earnings with 179 companies reporting, look out for Alphabet, MSFT and Amazon. Q3 earnings, estimates are for the Mag7 to post +33% growth on the quarter vs. +28% growth for the 493 other names in the S&P500.
Wednesday: UK budget likely to be the ‘boring budget’ with few surprises. FOMC decision – Hold with 25bps in Nov expected, focus will be on Warsh’s press conf. BOC rate decision - Hold at 2.25% (potential hike Dec/Jan)
Thursday: ECB decision – Hold, with November now in play for +25bps hike. US GDP estimate, US PCE data, Weekly UE claims
Friday: None
Active Defined Returns Fund Highlights ('DDR')¹:
The Fund returned –0.19% this week, against a materially negative equity market and continues to demonstrate strong resilience from the buffered downside protection.
The Fund has delivered predictable, consistent returns over 6 months (+4.5%) and 12 months (+8.5%), and we continue to outperform our peers over 12 months2.
Despite the recent seasonal pullback in markets, the Fund is well positioned into the end of the year with over £60m recently invested (Primary and secondary) as index levels moved lower in Sept/Oct and securing strong coupons.
The Fund is now £288m AUM with a strong pipeline to £300m in the next 4-6 weeks.
EQD defined return pricing remains strong, boosted by higher GILT yields, delivering coupons of approx. GILTs + 5%
One EQD position called this week, generating a return of 8.33% for the portfolio.
We added one new primary position on market weakness and higher vol levels, securing a strong coupon but we also lowered the initial AC trigger to 95% and the cover to capital loss to 60%. As we continue to actively manage pricing conditions to reduce risk.
We also utilised this market weakness to top-up £3.6m of existing positions, at yields materially higher than their contracted coupons.
The EQD portfolio remains well diversified with 51 positions and a weightedaverage coupon of 9.72%.
The GILT portfolio is fully interest-rate hedged to protect against the recent volatility in bond markets.
Core risk metrics remain robust, providing strong resilience to a downturn with a Cover-to-capital-loss at 36.90%.
The portfolio provides strong funding in excess of SONIA +43bps and maintaining a money-wtd maturity of 6.7 yrs.
Active Diversified Opportunities Fund Highlights ('DDO')¹:
The fund fell 1.5% over the week as markets corrected heavily across most risk markets.
The gold miners sleeve led declines as gold spot fell more than 3% to test $4,000/oz, hurt by surging oil prices clouding the Fed's rate path and accelerating ETF outflows. Agnico Eagle, Barrick Gold and Northern Star all fell 4-8%.
The defence sleeve gave back recent gains, with Japan Steel Works off 8.8% and Rheinmetall down 7.1% on profit-taking, despite no change to the structural rearmament thesis.
Korean equities were caught in the global tech and AI trade unwind — the Kospi fell as much as 4.4% mid-week, with HD Hyundai the sharpest single-name move at -12.5%. Samsung C&T held up well. The Kospi is now trading at its lowest forward P/E in at least two decades, a level that reinforces rather than undermines the valuation case for patient investors.
Partially offsetting these moves, Var Energi gained +5.7% as oil surged on Middle East tensions, the energy security sleeve continued to perform as intended. Burford Capital added +12.4% on news of appeal to the supreme court. Novonesis and Sony were both up +4.5%.
The fund remains at an excellent entry point with good positioning following recent clearing events in Sep/Oct.
1: Due to the forward pricing of UCITS Funds, the NAV does not relate to the exact same period as quoted for indices
2: Source Bloomberg on a 12 mth rolling basis, versus the WisdomTree Defined Returns Fund (B-class), and the Fortem Capital Progressive Growth Fund (A-class)
This material is provided for information purposes only and is intended for regulated financial advisers and professional investors only. It is not intended for retail clients and should not be distributed to or relied upon by retail investors.
It does not constitute investment advice, a personal recommendation, or an invitation or inducement to buy or sell any investment. Any decision to invest in or recommend the fund should be made solely on the basis of the current Prospectus and Key Investor Information Document (KIID), together with independent professional assessment of suitability.
Past performance is not a reliable indicator of future performance. Capital is at risk and investors may get back less than they originally invested.
Issued by Capel Asset Management, 20 North Audley Street, London, W1K 6WE. Capel Asset Management Limited is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 1057826). Registered in England and Wales (No. 17191384).
