European stock market indices resumed their upward trend in May, recording their strongest monthly advance since January (+4% for the Stoxx 600). In addition to reassuring corporate earnings releases, performances were buoyed by : 1) a de-escalation in the trade war between the USA and China, with a temporary 90-day reduction in reciprocal customs duties, from 125% to 10% for American goods imported into China, and from 145% to 30% for Chinese goods imported from the USA (with the separate 20% tax on fentanyl remaining in place); 2) a slight improvement in economic indicators in Europe, combined with falling inflation and a continuation of the ECB's rate-cutting trajectory; 3) an influx of capital into Europe, given the growing climate of mistrust towards the United States (Moodys sovereign rating downgrade, fears about D. Trump's fiscal policy and its impact on the public debt). Trump's fiscal policy and its impact on public debt). The US 10-year yield touched 4.6% during the month, ending at +4.4% (+24bp). The German sovereign long yield was broadly stable at 2.51% (+7bp).

All sectors finished in the green in April. Nevertheless, the best sectoral performers were travel (+11%), manufacturing (+9%) and banking (+8%). At the bottom of the pack was healthcare (stable over the month), due to fears of specific tariffs on European pharmaceuticals and Trump's desire to lower prescription drug prices in the US from 30% to 80%.

The fund posted a solid performance over the month, up 5.35% versus 4.82% for its benchmark index, the Stoxx Europe 600 NR, benefiting from its exposure to defense and banks, but also from its under-exposure to health and insurance. Since the beginning of the year, the fund has gained 14.08% (versus 10.12% for its benchmark).

Among the positive contributors: 1) Burberry (+61bp) was buoyed by the publication of better-than-expected quarterly results and the announcement of 1,700 job cuts, reinforcing the positive sentiment around the new management's strategic initiatives; 2) Infineon (+34bp) which, after the sharp correction in the semiconductor market over the past two years, is benefiting from expectations that are beginning to stabilize, with a cyclical low point probably reached in Q1; and 3) FLSmidth (+33bp) was buoyed by solid Q1 results, and an increase in its margin guidance for the year, supported by strong performances in its mining division.

Conversely, negative contributions included: 1) Sanofi (-12bp), which suffered from disappointing clinical trial results for its experimental drug Itepekimab. This raises concerns about the company's future growth profile, a fortiori with the imminent expiry of the patent on its flagship drug, Dupixent. 2) CRH (-6bp) was penalized by fears about US macroeconomic conditions and the stock's non-inclusion in the S&P500. 3) Lastly, Veolia (-4bp) confirmed the resilience of its business model with the publication of its quarterly results and announced the long-awaited buyout of minority shareholders in its Water Technology subsidiary, WTS, inherited from Suez. The price paid is slightly high, but justified, in our view, by the potential for value creation and synergies. The market was nonetheless disappointed by the failure to raise medium-term guidance (2027), given the announced EBITDA synergies (€90m), the forthcoming optimization of financial costs, tax synergies (minimum €10m), and the reduction in minority interests of around €50m enabled by this transaction.

In terms of portfolio movements, we took advantage of the weakness in stocks to strengthen our positions in CRH and ABF. We also continued to accumulate Burberry and Infineon, reassured by recent business trends.