The fourth quarter of the year ended flat to positive. The fund was marginally ahead of its benchmark in Q4 and also ended the year ahead of the benchmark. This followed a very strong first quarter and mediocre second and third quarters. In the final quarter of the year, October was particularly demanding, with most stock selection criteria contributing negatively. Debt market and inflationary fears, resulting in material shifts in yield curves, spilled over into the factor space, generating some large factor moves during the month. Market dynamics and sentiment were the largest detractors, although the valuation component of our dynamic valuation stock selection criterion also suffered significantly. Despite the increased market volatility in November, market conditions appeared to be favourable to generic factors, with quality, growth, and low risk particularly strong. This favourable environment was also supportive for our stock selection criteria. November was positive with many criteria adding value, sentiment bouncing back and recouping all the losses over the previous month, and the quality component of our dynamic valuation stock selection criterion also positive. The fund fared relatively well in December. Our dynamic valuation and company management stock selection criteria performed the best in December. Quality struggled globally. However, quality in North America had a small positive return, helping our combined dynamic valuation criterion. Naive expensive growth was significantly negative in all regions. However, our measure of growth adjusts for expensive valuations and can also be viewed as growth at a reasonable price. It is intended to select companies that will be able to sustain their growth rates into the future. Our sustainable growth criterion was therefore able to not detract from value and remained flat for the month.

The recent volatility and focus on macroeconomics, especially inflation, is expected to spill over into the New Year. It is worth reiterating that the fund strategy does not attempt to predict macroeconomic outcomes or market moves. The strategy focuses on what the market is reflecting and expecting, and the perceptions and risk appetites of market participants and investors. Depending on how the market and investors perceive and react to upcoming macro events, the fund’s model will adjust its strategy weights to maximise the expected return of the overall factor set given the current environment. Due to our strong focus on diversification in stock selection criteria, as well as on asset level, risk management and portfolio construction, any volatile market moves should not impact the active performance directly (the fund is constrained to be close to beta equal to one), only through different stock selection criteria weights being tilted given the dynamic weighting scheme. A diversified fund would be expected to perform relatively well in a volatile environment, such as the one we are anticipating, whereas predicting macro events and market movements is known to be notoriously difficult even when markets are less volatile.