During the second quarter (1 May to 31 July) our Euro PIN Fund, a fictional fund consisting of property-related listed companies in countries that use the Euro, made an overall loss of 6.0%.
This compares to an average loss of 2.75% during the same period for the FIGS stock markets (France, Italy, Germany, and Spain), which account for 75% of the eurozone population.
Our Fund would have had an even worse return in Q2 were it not for the fact that seven out of our ten companies paid dividends during the quarter. As can be seen in the table below, the total return for this Fund (in sterling) in its first two years of its existence is just over 23%, which is not too shabby. However, it is worth pointing out that over the past two years, the euro has weakened against sterling, from €1.11 at the start to €1.19 today. If the exchange rate had stayed the same over the past two years, this Fund would have returned around 32%.
ECB still behind the curve
The European Central Bank (ECB) shocked markets on 21 July with its biggest interest rate rise in 22 years, finally ending the era of negative European interest rates. However, before giving the bank too much praise, it is worth noting that the ECB base rate is still at 0% today, despite inflation in eurozone countries currently running at 8.9%.
The Baltic countries remain especially (negatively) affected by the 0% interest rate, with Estonia currently experiencing inflation of 22.7%, Lithuania 20.8%, and Latvia 21%. At the time of writing, Russia added Latvia to its list of countries that it has cut off gas supplies to (Poland, Bulgaria, Finland, Netherlands, and Denmark are the others) for refusing to comply with demands for payments in Russian roubles.
The result of these gas supplies being cut, or in some cases reduced, to European countries, combined with the ECB being far slower to raise interest rates than other western nations, has pushed the Euro to a 20-year low vs. the all-important US dollar (which all commodities are priced in) and led to the energy costs across the eurozone soaring by almost 40% compared to a year ago.
Capital Economics expects the ECB to hike rates again by another 50bp in September, and again in October, followed by 25bp in December to bring rates to 1.25% by the end of the year. The company also predicts that the deposit rate will be lifted to around 2% next year.
