Newsletter | April 2021

VOLKSWAGEN’S POWER DAY CONVINCES INVESTORS

+ 7.8% A STRONG MONTH FOR THE EURO STOXX 50

Investment perspective

Equity markets performed well in March despite the headwind represented by rising long-term Treasury yields. European equities outperformed, with the Euro Stoxx 50 climbing by 7.8%, whereas emerging markets struggled as the prices of Chinese mega-caps continued to slide. US Treasury yields extended their early year rise, in contrast to those of Bunds; 10-year Treasury yields increased by 34bps to end the month at 1.74% while same-maturity Bunds saw their yields drop by 3bps. The Fed’s lack of action diverged significantly from the more pro-active stance of the ECB. March was also a strong month for the dollar which benefited from the widening interest rate differential and the faster growth prospects for the US economy.

Even if developed equity markets ended the month with strong returns, it wasn’t all plain sailing. Growth stocks got off to a poor start as the Fed’s chair, Jerome Powell, failed to alleviate fears over rising yields and higher inflation expectations. He tended to downplay the rise in yields as he did not consider it to be “disorderly” and did not provide any indication that the central bank would be pushing back against the ongoing trend. Powell also insisted that he sees inflation pressures as being transitory and that the Fed would be patient before starting to hike rates. On its side, the ECB took a different approach as it stepped up the weekly pace of its emergency bond-buying programme to its highest level for over three months. This action contributed to rein in the rise of Eurozone bond yields and reassure investors of the bank’s ongoing support.

The Volkswagen Group presented its technology roadmap for batteries and charging up to 2030 during its first Power Day on March 15. The company will invest into six EV Battery “Gigafactories” which will be established by the end of the decade. It will also pursue the expansion of the public fast-charging net-work globally to make the electric car attractive and more viable as it ramps up its production of electric vehicles. The prices of Volkswagen preferred and ordinary shares rocketed following these announcements, rising by 44% and 60% respectively during the month of March.

Investment strategy

We remain committed to our overweight equity allocation. The rise of bond yields appears to have paused and strong economic data is supporting our positive economic outlook for the quarters ahead. We still consider the equity asset class to offer the best risk/reward and we are positioned accordingly. Our fixed income allocation, focused on the more dynamic segments of the market, has proven to be very resilient in view of the rising bond yields; emerging market debt, high yield, convertible bonds and senior secured loans represent our key exposures in this asset class. We also view the recent appreciation of the dollar as temporary and the dollar allocation for non-USD portfolios is still underweight. Despite a disappointing performance of gold prices since the beginning of the year we continue to hold a position in the precious metal as a source of diversification and as a hedge against the more extreme market risks.

In March we increased our equity exposure by adding a new equity fund investing into mining equities. This investment allows the portfolios to be more exposed to the commodity space, with a special focus on speciality metals. The demand for metals such as cobalt and lithium as well as industrial metals such as copper should remain sustained, as it is driven by transformative changes of the global economy and huge infrastructure investments.

THE RALLY OF RISK ASSETS APPEARS LIKELY TO CONTINUE

Portfolio Activity/ News

March was a positive month for the portfolios thanks to the performance of most equity positions. The best contributions were provided by both Value and Growth equity funds as the rally broadened across different investment styles. Additional contributions were provided by the aternative strategies whereas the China equity fund had a disappointing month, as did an EM fund investing according to a Growth approach. Our long duration bond fund also ended the month with a modest negative performance due to the impact of rising long-term Treasury yields.

We approved three new funds during the past month. The first one invests into a range of mining equities, including both gold and speciality metals’ miners, in particular those needed for the improvement of battery technology, for the production of electric vehicles and for the decarbonisation of the economy. This strategy fully integrates a wide range of ESG considerations as part of its investment process. The other two funds invest according to an “Impact” approach. Their objective is to invest into companies that provide solutions to the current challenges faced by the planet, as defined by the United Nations’ 17 Sustainable Development Goals (SDGs). These funds invest across environmental and societal themes, including the circular bio-economy, the transition to less wasteful economies as well as fairer ones. Both funds are run by leading asset managers which benefit from a high level of expertise and extensive resources in this domain. At a time when a lot of “greenwashing” is taking place in the industry of finance, it is even more critical to select these types of investments most diligently.

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