TPP strategy of the month for October. The active approach is the winner.

Strategy of the Month

October was a rough month for markets. The S&P 500's 5-month run of gains came to an end as the month closed on a down note.

The large-cap index fell 1.0% from the end of September, while the Dow Jones Industrial Average shed 1.3% and the small-cap Russell 2000 dropped 1.5% during the month.

The CAC 40 in Paris continued its poor run dropping another 3.7% with most European Indices having one of their worst months of the year.

The pullback comes after the S&P 500 hit an all-time high during October, as markets had largely been sustained by the expectation that the US Federal Reserve will keep lowering benchmark interest rates and the US economy is poised to avoid a recession. While those factors are still in play, earnings results from Big Tech players that dominate the index's weighting disappointed investors and sent shares lower for companies including Meta Platforms Inc., NVIDIA Corp. and Microsoft Corp.

Growth risks remained the primary concern for investors, despite signs of resilience, particularly in the US economy. Uncertainty was also heightened by the imminent US election and the potential implications of a policy shift on inflation and interest rates.

Developed market equities posted a negative return of 2.0%. Growth stocks outperformed their value counterparts but fell 1.8% on the month. Small caps retraced by 2.7%, as slowing economic momentum continued to weigh on the segment.

In Europe, there was more evidence of a weakening economic backdrop, with Germany at the epicentre. Recent VDA data (the automobile industry) indicated continued declines in industrial and car production, with the manufacturing PMI output index remaining firmly in contractionary territory. This weakness in activity was reflected in the European equity market, which posted a decline of -3.2%.

The UK saw huge outflows from funds as the budget drew closer. By the end of the month the MSCI United Kingdom index was down -1.4%, less than many of its European counterparts, but still a disappointing month. It was saved by a strengthening dollar as the UK market actually fell -5.5% in dollar terms.

After the budget Gilts sold off fairly hard and were an underperformer in the sovereign debt market posting losses of -2.8% on the month compared to -2.4% in Treasuries and -1.1% in Bunds (the German market).

The Barclay’s ‘Hedge Fund Index’ fared slightly better with a smaller drop of -0.87% due to its diversified nature, but even the most revered hedge funds failed to stop the rout.

‍

Source: Bloomberg. Past performance is not a reliable indicator of current or future results.

Japanese stocks were the top performer despite concerns that the need for tighter policy and a stronger yen could impact export-oriented companies, as well as political uncertainty created by recent election results. Emerging markets declined by 4.3%, pressured by a strong US dollar (USD), profit-taking in India and volatility in Chinese equity indexes due to uncertainty over the efficacy of the support measures announced in September.

China's recent support measures have renewed focus on the country’s equity market. In October, policymakers introduced new initiatives which will allow local governments to use special local government bonds to purchase land from troubled developers alongside a planned debt ceiling hike for local governments. This indicated Beijing's commitment to managing the real estate bubble and boosting consumption. While it is too early to fully assess the impact of these measures, looser monetary and fiscal policy could potentially lead to improved growth in 2025.

Despite this positive news, Emerging and Asian markets returned -4.3% and -4.5% respectively, hampered by a stronger dollar. Indian stocks have been a leader for much of 2024 but corrected sharply in October, falling 7.3% in local currency terms, mainly due to weak corporate results.

In fixed-income markets, the resilience of the US economy and uncertainty surrounding potential post-election policy changes prompted a more gradual re-pricing of the anticipated Federal Reserve (Fed) rate cuts. The Barclays Global Aggregate Index returned -3.4%. Credit markets also exhibited some weakness, despite solid underlying fundamentals. Global REITs declined by 4.5% due to expectations of a slower path for Fed rate cuts. Emerging Market Debt (EMD) closed with a -1.8% return, pressured by a strong USD.

Oil prices were choppy, as macroeconomic concerns and risks of falling demand were weighed against the geopolitical tensions in the Middle East. Overall, the commodity index fell by 1.9% in October.

TPP

As you would expect, TPP’s Leveraged Trackers suffered in October. The Nasdaq and the S&P kept losses to a minimum at around -2%, but with the latter now still up 25% on the year, those losses won’t make much of a dent on profits.

The Banker's Fund which is tech-heavy also kept losses to a minimum only dropping -1.7% on the month. That equity strategy is now up 13.3% on the year and has made good money for all clients linked to it.

However, it is the active strategies that have made a strong return to The Strategy of the Month in October. Where long-only trading strategies might suffer, our actives don’t have the same limitations. Many have been playing both the long and short side this month with great results.

Trading Strategy

October Performance

‍

Source: TPP. Past performance is not a reliable indicator of current or future results.

‍

October was one of the worst months of the year so far for markets. All major financial assets posted negative returns in USD apart from gold, silver and oil. There were very few ways to make money last month, but several of our active strategies managed it successfully. We hope they continue their run as we enter the new month of November and all it has to bring

We have no doubt, November will be just as volatile.

‍

‍

Building your portfolio:

‍

We built TPP for frustrated investors. Our aim is to build benchmark beating portfolios for the every day investor. We do this by offering 3 unique tactics which all aim to outperform their benchmark independently, but collectively and utilised together provide a diversified and robust portfolio for any investor.

They won't all be positive every month or every quarter, but given any extended period of time, we expect they will deliver.

A well known statistic in the market place is that over 80% of wealth managers underperform a simple market tracker. Yet our most basic strategy (the leveraged trackers) returns 1.5 x it's benchmark (no if's or no but's). It also has 1.5 x the volatility of a standard tracker, but as a long term growth proposition they are very hard to beat.

Our second tactic is a 'long or flat' approach. Similar to the leveraged trackers they are predominantly on the BUY side of the market, but when global stocks (or their specific benchmark) look overbought or the climate is uncertain they move into a flat/market neutral position. This ensures they miss many of the sharp retracements.

Finally we have our more speculative active/long short strategies whih can do all of the above plus much much more (like short selling the markets). This month they excelled, but the best portfolios are the one's which have a combination of all 3 tactics.

‍

If you're an investor, and looking for ways to build a benchmark beating portfolio, please reach out for a consultation call. We'd be delighted to assist.

If you're a current client of ours, we're providing free portfolio reviews at the moment, so don't hesitate to schedule yours.

‍

Schedule a call by clicking here.

‍

Here is to another solid month in November.

‍