The KEN European Growth Champions Fund lost -1.45% in the month of February. The average net exposure was 71.93% and the long and short books detracted by -.066%, and -0.21% respectively. The ongoing war in Europe has changed public perception about the necessity of defense, and Pistorius, the new German Defense Minister, has expressly called for expanding defense capacities in Europe. Defense stocks have recently reaped the benefits of this paradigm shift and Rheinmetall (+9.66%) and Hensoldt (+14.50%) were the greatest contributors to fund performance this past month. Defense spending is likely to climb further, and as the industry tends to be less volatile, we are sticking to our position.
In terms of interest rates, we have yet to see a turnaround despite speculation about peak inflation. The world economy remains strong, providing further scope for restrictive interest rate policy. Speculation has made fertile ground for uncertainty to grow regarding interest-rate-sensitive stocks – especially in real estate and growth sectors. We have built up a position in Vonovia, a company that holds a large portfolio of real estate, as it is a stock that has been oversold and bears significant potential. A more nuanced view, disassociated from the current interest rate environment, must be taken of Vonovia’s total debt (including its green and social bonds). Instead of upside in an interest rate environment that is to become more predictable, we see potential in the structurally high demand for apartments in Germany and the current reluctance of investors when it comes to new construction (residential market forecaste 2023 (empirica-institut.de), see page 9). According to this research, rents are forecast to rise and companies like Vonovia stand to profit with their core business being real estate portfolios. Our position in Zalando started to wane after its 30% run in January and lost 12% in February. Online retailers such as Boohoo or Asos (both considerably smaller) are starting to catch up. We have reduced our position in Zalando accordingly but remain invested.
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