10 March 2023

Investment Update

Investment Update February 2023

Quarz Active Value has outperformed its benchmark by 174bp (in US$ terms) since the beginning of the year as our positions showed resilience against renewed concerns about rising interest rates and markets were digesting incoming new data.

Recent economic indicators prompted traders to price US rates to peak at 5.7% this year, co mpared to just 5% just a month ago. US pending home sales rose by the most since June 2020 in January and producer prices rebounded by the most since June the same month.

But it was the labour market data in particular, which caused concerns about the Federal Reserve going further than expected so far. Nonfarm payrolls rose a staggering 517,000 in January, more than double the amount expected by economists. And the vacancies at US employers unexpectedly climbed to a five- month high of over 11mio in December, the largest increase since July 2021.

We are not convinced that the labour market is as tight as the data suggest. Excluding the seasonal adjustment, the nonfarm payrolls are much lower and actually point to a decrease in employment. And as regards the job openings, even the U.S. Labor Department has admitted recently that the reliability of the estimates has declined in recent years because fewer businesses have been responding to survey questions.

As such, we are still expecting more reliable data in the coming months, which in our opinion will point to a looser situation in the labor market and prompt markets to revise their expectations for the Fed Funds rate.

While we are still preparing for some campaigns later this year, there was some interesting news regarding Sabana Reit, where we still have a stake. After the partial offer made in January by Volare Group to buy an additional 10% in Sabana at S$ 0.465 per unit, the Reit manager on 24. February published a circular, in which the independent directors of Sabana recommended to accept the offer.

This not only increases the odds that the offer will be accepted by the 10 percent needed. Sabana also recommended not to hire a costly independent financial advisor (IFA). We had argued that while the performance of Sabana had deteriorated over the past years, the offer was better than the offer made in 2020 by ESR Cayman and endorsed by independent directors at the time. Given those developments we said there is no need to hire a new IF A. We were glad to hear that Sabana in its circular from 24. February came to the same conclusion.