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NESTOR Europe - Quarterly Report 2/2022

High-performance machine world trade has a lot of sand in its gears

NESTOR Europa leaves DAX family far behind in crisis

With a decline of -20.74% (V share class), the NESTOR Europa fund performed in line with the international indices in the first half of the year, while the benchmark MSCI Europe index lost -13.57%. Thus, European equities have not underperformed other regions so far in 2022, despite the war in Ukraine. In contrast, German small caps tended to be relatively weak (MDAX -26% and SDAX -28%).

The performance of the V share class since launch on 01.07.2016 is +72.29%, compared to +47.15% for the MSCI Europe TR, so the fund's excess return is a good 25%.

NESTOR Europe leaves S-, MDAX and DAX far behind during crisis
In recent years, from a German investor's point of view, the opportunities of European funds have often been judged to be below average. But how has the NESTOR Europa Fund actually performed in the last 5 years compared to the DAX family?

NESTOR Europe Fund: +36.35% (+6.39% p.a.)
S-DAX:                        + 7.37% (+1.43% p.a.)
M-DAX:                       + 5.61% (+1.10% p.a.)
DAX:                           + 3.72% (+0.73% p.a.)

Friend and foe
Never before in the history of the world has global trade been as closely intertwined as it is today. The international division of labour has created prosperity on a broad front, but it cannot tolerate sand in the gears. It does not tolerate container ships paralysing canals, key countries trying to eradicate cold viruses and raw material suppliers waging wars of aggression. But who is friend and who is foe? Apparently, even the World Economic Forum (WEF) has problems answering this question. In 2021, the WEF conducted the simulation of a large-scale cyber attack "Cyber Polygon" together with the Russian news agency Tass and the Russian Sberbank. In the meantime, the German Office for the Protection of the Constitution has issued an urgent warning against Russian cyber attacks (!). Let us hope that we will be spared large-scale events of this kind, because even the best gears cannot take any more sand.

Price slumps offer excellent entry opportunities
Stock portfolios should basically be a permanent investment in which the investor must (be able to) endure certain fluctuations and slumps. Excessive liquidity is reassuring in the short term, but carries the risk of missing the re-entry. In our view, one should generally return to full investment when the economy is in recession. Since this point in time is usually only determined retrospectively, a successive re-entry on sell-off days is a good idea.

Glimmer of hope on the horizon?
So far, the environment for equities still looks very modest. High inflation is forcing central banks to make overdue interest rate hikes and "hawkish" statements. However, the bond markets have already reacted violently, leading to a veritable bond crash. In unison, the outlook for many sectors has cooled noticeably. Thus, numerous negative factors such as supply bottlenecks, freight rates or high commodity prices should weaken noticeably. In 2023, the inflation rate will also be noticeably depressed by the so-called base effect. Thus, the braking effects of higher interest rates are already having an impact, and an overreaction by the central banks in the current situation could have devastating effects on the global economy.

Outlook
The environment for equity investments is likely to remain bumpy. However, in such an environment, we have already sown the seeds for significant outperformance several times in the future. Our preferred competitive value builders are extremely flexible and adapt quickly to new situations. In addition, there are opportunities for acquisitions and new business activities for which weaker competitors lack the capital strength.

Dirk Stöwer, Kontor Stöwer Asset Management GmbH