Global equity markets suffered negative returns in October across the board, ending the positive momentum that started early August. Losses were more significant in Europe, with the Euro Stoxx 50 down 3.5% last month. As of 31/10, US equities are still leading since the beginning of the year, with a +21% total return for both S&P 500 and Nasdaq. Although the upcoming US elections are a “known unknown”, they have become a major catalyst for equity markets recently, as they’ve started to factor in a Trump win of the Presidential election, with a Republican sweep at Congress. This configuration could have considerable implications on policy decisions in the US as early as H1 2025, not only on tariffs but also deregulation and taxation. Although Trump’s erratic announcements on the campaign trail make any economic forecasts difficult at this stage, it is likely that his progrowth economic agenda will lead to inflationary pressures and a confrontation with the Fed’s monetary easing agenda. As a result, the surge in 10Y US Treasury yields since mid-September already reflects the risk of a premature end to the Fed’s rate cut cycle in Q1 2025, which ultimately impacts historically-expensive US equity valuation multiples. However, despite their already very-low risk-premium, US equities have extended their outperformance in recent weeks. Trump plans of massive regulatory easing offer the perspectives of a faster US reindustrialisation, with even more reshoring incentives than with Biden’s IRA initiative. The US and other DM economies would decouple in terms of regulatory standards, very likely resulting in a faster earnings growth trajectory for US companies vs. rest of the world, giving the US stock market a new upside catalyst in addition to AI innovation. The actual earnings season in Europe is showing anaemic earnings growth, illustrating this earnings divergence and the risk of continuous large outflows towards the US market, further increasing its performance leadership in 2025.

The Fund was up +0.6% (A, USD) in October reaching +7.3% annualized YTD return, catching up with its annual objective of short-term rate + 3%. Like in September, the unusual configuration of toppish equity markets and high volatility helped improve the Fund’s running yield whilst maintaining a large downside protection. Some reinvestments were structured with auto-calls after 2 months, securing high-income until year-end. As of 31/10, the Fund’s running yield increased 0.7pt to +10.3% p.a. (USD, gross), with +17.1% downside protection of the income notes allocation and 5.2-month average maturity.