Newsletter | Diciembre 2020



Investment perspective

November was a record-breaking month for global stockmarkets. The MSCI World Index in local currencies surged by 11.8%, its best month since it was created in 1990. European markets outperformed, with the Euro Stoxx 50 Index rising by 18.1%, while US markets hit record highs. The positive vaccine announcements by several pharmaceutical companies were the key drivers for the strength of the equity markets. The appetite for risky assets was also reflected by much tighter credit and emerging market debt spreads, higher commodity prices and a depreciation of the US dollar. The price of gold weakened by 5.4% as demand for defensive assets subsided, even if sovereign debt yields ended the month with relatively limited changes.

The series of Covid-19 vaccine breakthroughs and Joe Biden’s victory in the US presidential election removed two quite significant tail risks from the market. Anticipations of a rapid economic rebound in 2021 were a major boost for the stocks of companies having been the worst affected by tight restrictions to limit the spreading of the virus. This was reflected by the rotation into the more cyclical sectors and by an outperformance of small caps. Markets also responded favourably to the outcome of the US elections as a still to-be-confirmed divided Congress should prevent radical reforms. The election of Joe Biden was also perceived as positive for international relationships and for global trade following a period of unpredictability and elevated tensions during Donald Trump’s presidency.

Optimism over a strong economic recovery was best reflected by the rally of oil in anticipation of higher demand for fuel products. WTI oil prices rose by over 26% during the past month to reach a level of $45 per barrel compared to $50 before the correction that took place in March and April.

The ongoing underperformance of the Value style compared to Growth has been well covered. As shown above, the MSCI Europe Value index has lagged the MSCI Europe Growth index in most of this year’s months. In November however, European value stocks made a spectacular comeback as they out-performed European growth ones by close to 11%, in large part the result of positive Covid-19 vaccine announcements. Banks, energy and automobiles were some of the best performing sectors.

Investment strategy

Our concerns over a potentially volatile period have proved to be unfounded as equity markets rallied in a spectacular fashion during November. The portfolios benefited from their broad diversification again as the largely out of favour value positions contributed the most during the past month. 2020 will be remembered for many reasons in the capital markets, but the speed at which market factors have changed during certain periods has been breath-taking. Our equity exposure is back to being overweight as a result of a new investment and of market performance. While we continue to be wary of the current valuations of equity markets, other driving forces are overwhelming and likely to push prices even higher.

Within fixed income, we consider emerging market debt to be one of the most the attractive asset classes and we have reinforced our exposure into EM corporate bonds. Emerging market assets should benefit from inflows, the depreciation of the dollar as well as from the cyclical recovery in 2021.


Portfolio Activity/ News

November was a strong month for the portfolios, with all the underlying positions, except gold, producing positive monthly returns. The highest contributions were provided by funds managed according to a value approach. One European fund gained 27% as it benefited mainly from its exposure to banks and oil. All European funds contributed well as did the US Value fund, the Japanese funds, and Small Caps overall. Within fixed-income, EM corporate debt, high yield and convertible bonds were the outperformers, while equity long/short was the best alternative strategy. The detractors proved to be gold and the US dollar for non-USD portfolios.

Towards the end of the month, we invested into a new fund focused on real assets. The fund’s types of assets include infrastructure, specialist property, renewables and other alternatives such as music royalties. These kind of assets benefit from well-defined income streams and long-term contracts. This investment solution can be characterized by its resilience, low volatility and low market beta.

The latest addition to our list of funds is a long/short credit fund primarily investing into US high yield corporate bonds. The manager has demonstrated his ability to protect the portfolio during market drawdowns as well as to capture a large part of the upside of the asset class. The prevailing market conditions appear as well-suited for this type of investment approach.

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Newsletter | November 2020



Investment perspective

October stood up to its reputation of often being a volatile month for equity markets. Following a positive first half, most equity indices took a turn for the worse and ended the month with losses. European markets underperformed, with the region’s economic outlook being hurt by the introduction of much tougher restrictions to fight against a surge of coronavirus cases. The Euro Stoxx 50 plunged by 7.4% compared to a 3.1% drop for the MSCI World Index in local currencies; emerging markets outperformed strongly as they recorded a 2% monthly gain. Oil prices were hit by demand concerns and fell by 11% over the month. Credit and emerging spreads were stable whereas Bunds and the US dollar logically benefited from their safe haven status.

Markets had to contend with a rising level of uncertainty towards the end of October and volatility levels ended the month considerably higher. On top of the looming issue of the November 3rd US general elections, the hopes for another US fiscal stimulus were dashed and European governments had to react vigorously to the fast spreading of the pandemic. Also, a better-than-expected Q320 earnings reporting season failed to provide additional support for the markets as a lot of good news had already been discounted. The Asian region continued to be the brighter spot for equity markets in reason of its solid economic recovery and a limited impact of the coronavirus pandemic.

At the time of writing this newsletter, results from the US election are yet to deliver a conclusive outcome and the counting of votes could take longer than normal due to an above-average number of postal ballots. Markets have thus far reacted with calm despite the threat of protracted judicial battles by both sides. This reaction could be explained by the likelihood of a divided Congress, meaning that the potential for significant changes to tax policy and to the reg-ulatory framework for sectors such as financials and energy may be reduced.

Investment strategy

As we had expected, equity markets have proven to be more volatile during the recent weeks in large part due to factors mentioned previously. This has translated into increasing concerns about the pace of the economic recovery, in Europe in particular. Several countries have reintroduced lockdowns, and even if they are not as strict as during the spring, they will be detrimental to the near-term economic outlook. In the light of elevated uncertainty, we have reduced our equity exposure back to neutral and boosted our cash position. With the portfolios continuing to hold some protection by way of a January Put spread, we feel well positioned to face a period where volatility could remain well above average.

Within the equity allocation, the exposure to Asia remains overweight and we feel confident about the resilience of Asian markets. The region’s capital markets should continue to benefit from foreign inflows, supportive economic data and lower correlation with European and US markets. The correlation of high-yield bonds with equity markets has also been decreasing recently, a positive development for the portfolios in terms of diversification.


Portfolio Activity/ News

October was a slightly negative month for the portfolios, in large part due to weaker equity markets. The drawdown was limited, however, thanks to strong alpha generation and to the positive contribution from the Put spread. European equity funds were the worst detractors even if they fared better than their respective benchmarks. The largest positive portfolio contributions were provided by emerging, frontier and Chinese equity funds. European investment-grade bonds was another positive contributor as was the US dollar for non-USD portfolios.

Towards the end of the month, we trimmed some of the better performing positions to lock in profits and also cut some underwhelming funds to bring our equity allocation closer to neutral.

This extraordinary year has seen record levels of dispersion within the markets, whether between sectors, strategies, regions and individual stocks. For that reason, it has been most satisfying to observe that many of our active managers have added significant value through their stock picking and their allocations to the different sectors.

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Newsletter | October 2020



Investment perspective

For the first time since the selloff observed in March, global equity markets produced a negative monthly return, with the MSCI World Index in local currencies dropping by 3% in September. US stocks underperformed as the momentum rally led by the technology mega-caps collapsed suddenly; this was reflected by the 5.2% monthly decline of the Nasdaq Composite. Demand for safe haven assets benefited the sovereign debt markets as well as the US dollar, whereas high yield bonds were negatively impacted by the widening of credit spreads. The stronger dollar contributed to extend the profit taking on gold prices, observed since the beginning of August, and also hurt the whole commodities’ asset class.

Year-to-date lagging stocks did not benefit from the profit-taking on the 2020 big winners as no real factor rotation was observed in the equity markets. The rise of the number of new Covid-19 cases, in Europe in particular, continued to weigh on the prices of already depressed stocks in some of the services’ sectors. Weaker-than-expected Eurozone PMI Services data confirmed that the economic recovery already appears to be stalling as more restrictions are being introduced across a number of European countries. In the US, the lack of any agreement on a new fiscal stimulus was a headwind for equity markets as was the rise of political tensions ahead of the upcoming US elections.

The final quarter of the year could prove to be particularly eventful and market volatility is likely to remain elevated. The outcomes of the US election and of the Brexit negotiations are just two of the issues that could have a meaningful bearing on markets on both sides of the Atlantic. A contested result of the US presidential election would be the worst result and would only add to the already high level of uncertainty. Other key ongoing issues include the timing of a new US fiscal stimulus as well as the approval of a widely accepted Covid-19 vaccine.

Investment strategy

The correction of equity markets observed in September does not appear to have fundamentally altered investors’ perspective on the markets. The equity asset class remains the obvious choice in the light of massive monetary support and hopes of additional fiscal stimulus. These factors should not however conceal the fact that the level of uncertainty on a number of issues remains elevated. This largely explains why we continue to hold some optionality in the portfolios to limit the potential damage of a more pronounced reversal of trends. The latest economic data, especially in Europe, are confirming that the recovery is not going to be smooth and that forecasts are prone to be subject to significant revisions. While having only a very limited impact on the markets at this stage, this could change were the economic outlook to deteriorate even more.

Our equity exposure is well diversified. We prefer to spread the risk across a number of regions and strategies rather than rely too much on one particular investment style or on one region. This approach served us well last month as our allocation to Japanese equities provided a significant positive contribution whereas most other equity positions ended the month with negative returns.


Portfolio Activity/ News

September was a slightly negative month for the portfolios due to weaker equity markets. A European value fund was the worst detractor followed by US Growth, US Small Caps and emerging market corporate debt. The trend-following strategy was also a detractor, in large part due to the rebound of the US dollar. The best contributions were provided by Japanese equities with stellar outperformances recorded by two funds. An Asian equity fund also brought a positive contribution as did the US dollar for portfolios referenced in other currencies. The fixed income exposure produced mixed results with high yield and emerging market debt underperforming.

During the past month, we decided to add to the exposure to Asian equities by investing into a China-focused fund. This was financed by trimming some fixed-income positions with limited upside. The Chinese equity market has proved to be resilient and generally less correlated to other equity markets. The lower impact of the coronavirus disease on the Chinese economy relatively to the rest of the world has been one of the drivers of the outperformance of Chinese equities. This factor combined with reasonable valuations should continue to be supportive.

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Newsletter | September 2020



Investment perspective

 Global equity markets performed strongly in August with the MSCI World Index in local currencies climbing by 6.1%. The US stock market had its best August since 1986 as the S&P 500 jumped by 7% and fully erased its losses from the coronavirus pandemic to hit new record highs. European stocks underperformed (+ 3.1% for the Euro Stoxx 50) and still remain below the levels observed in early June. Sovereign debt markets experienced a quite volatile month and the yields of long maturity bonds ended the month higher. The depreciation of the US dollar was extended throughout August and the euro ended the month with a 1.3% gain. 

Once again US equity markets were caracterized by the significant out-performance of the Nasdaq indexes and of the technology sector in particular; the Nasdaq Composite Index rose by 9.6% while the S&P Technology Sector Index climbed by 11.8%. Outstanding performances within the market were recorded by companies such as Tesla (+74%), Salesforce (+ 40%), Facebook (+ 16%) and by the biggest of them all, Apple (+ 21%). It was also revealing that the level of implied volatility of the US market, measured by the VIX Index, rose in tandem with equities during the second half of the month. Simultaneous increases in equity and volatility gauges are unusual and the move in the volatility measure may have been the result of investors chasing the rally. 

As widely expected, Federal Reserve Chair Jerome Powell announced a major shift in the way the central bank aims to achieve maximum employment and stable prices. During the virtual Jackson Hole Symposium, Powell said that the Fed would adopt a form of average inflation targeting regime, meaning that inflation will be allowed to go “moderately above” its 2% target after periods of persistently low pricing pressures. The Fed also signalled that employment can run stronger without setting off unwanted spikes in inflation. This means the Fed won’t be raising rates anytime soon and would not increase rates or brace for a rise in inflation even as employment levels strengthen. 


Investment strategy

The summer months have seen financial markets continuing to claw back their February and March losses. We did not change the structure of our portfolios but have added to our portfolio protection by covering the short September S&P Put option and by initiating a new January S&P Put spread. Our assessment of the current market conditions is torn between the logic of rising asset prices as a result of massive liquidity injections and our rising concerns about stretched valuations. This largely explains why we feel it is critical to hold some protection as a way of limiting the damage that a potential reversal of prevailing market trends would trigger.

We are getting closer to reducing our US dollar underweight for non-USD denominated portfolios. The Dollar Index has been depreciating since its peak observed in March and the move appears to be getting long in the tooth. The positioning of traders on the dollar is extremely short and thus reduces the likelihood of further immediate depreciation. For the EUR/USD parity our target for some dollar buying is around the 1.20 level.


Portfolio Activity/ News

August was a very strong month for the portfolios as only a small minority of underlying funds ended the month with modest negative returns. Within the equity asset class, US, Japanese and Frontier Market equities as well as European Small Caps produced the highest contributions. Significant contributions were also generated by a Long/Short equity strategy, European Value equities and by a thematic fund which was launched in the summer. Two fixed-income funds with longer duration and the trend-following strategy were small detractors, resulting largely from the rising yields of sovereign debt.

During the past month, we extended our Put spread strategy from a September expiry to a January one. We also approved a fund whose investment universe includes the world’s most valuable brands (global, upcoming and digital brands) as well as a Biotech fund. We have also purchased recently a thematic fund which invests into equities benefiting from secular growth opportunities, with a focus on the technology, healthcare and renewable energy sectors. The manager’s research and investment approach is original as it draws scientific, technological and industrial research together with financial analysis. Their process starts with the generation of ideas by scientists within their field of competence before financial analysts then conduct traditional financial research.


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Newsletter | April 2020



Investment perspective

March was the most dramatic month for capital markets since October 2008. The end-February plunge of equity markets spread across all the other asset classes and only very few managed to end the month with gains. Chaos was observed even in the markets of the safest assets, as a result of panic selling to raise cash at all costs; 10-year Treasury yields initially fell from 1.14% to an all-time low of 0.32% before jumping back up to 1.3% to then end March at a level of 0.67%. The price of gold dropped by 12% within seven trading days as margin calls forced investors to liquidate positions. Huge volatility was also observed in the currency markets, due to a rush for dollars, and the EUR/USD parity traded within a wide range of 1.06 - 1.15. The coronavirus Covid-19 pandemic was obviously the driver of market stress, but this was also compounded by the collapse of oil prices; Russia walked away from OPEC + discussions over a Saudi proposal for additional production cuts. This outcome resulted in oil prices dropping by more than 50% in March.

In contrast to what took place during the great financial crisis in 2008, fiscal and monetary authorities have been very quick to respond. Record-breaking aid packages and unprecedented support for financial markets have been announced. The Federal Reserve slashed interest rates by 1.5% to zero in two emergency moves and has committed to an unlimited expansion of its bond purchasing programs. US Congress voted in favour of a $2 trillion Coronavirus aid package and is already considering doing more. After a stuttering start in its answer to the crisis, the ECB also ramped up its asset purchase program, which now amounts to € 1’100 billion. In Europe, governments have taken a broad range of measures to support households and companies, destined in particular to prevent massive unemployment. On a less positive note for the Eurozone, a proposal to issue “Coronabonds” in order to drive down the borrowing costs for some of Europe’s most heavily affected countries was rejected by Germany, the Netherlands, Austria and Finland.

The chart above illustrates the speed of the equity market correction from its February 19 peak; the S&P 500 Index plunged by 34% until March 23 before rebounding by 15.5% to end with a monthly loss of 12.5%. This was the fastest stock market correction in history and reflects the huge pressure on equity prices in reason of massive deleveraging, deep rebalancing across a range of strategies and outright selling. An end of month/quarter rebalancing in favour of equities was also likely the main driver of the late month rebound.

Investment strategy

Our allocation to equities has been significantly underweight since March 3rd when we covered half of their exposure by the purchase of an end of June S&P 500 Put, strike 3’000. The equity allocation of our balanced model portfolio was thus reduced to 23%; following the correction of equity markets, the net exposure to equities has now dropped to below 20%. For the time being we are maintaining this protection in view of extreme uncertainties. The impossibility to determine the length of widespread confinement measures, their ultimate impact on the economy as well as a total lack of visibility on future earnings are the key reasons for our cautious stance.

The management of the Put position is our main focus and, were markets to fall further, we are prepared to lift at least some of this protection. We are also willing to be proven wrong if equity markets were to rebound strongly, with the result that the hedge would then represent an opportunity cost for the portfolios. We have also been actively engaging with the managers of our funds to make sure they are not facing undue redemption pressures and, so far, we have been reassured that this has not been the case.


Portfolio Activity/ News

March was a very difficult month for the portfolios as all asset classes found themselves under huge pressure. With virtually nowhere to hide, we were relieved that we had partially hedged the equity exposure and that some of the alternative strategies (L/S, CTA & Global Macro) proved to be very resilient and able to generate positive monthly returns.

Some fixed income positions were badly hit, high yield credit and emerging market debt in particular, as market liquidity evaporated. On a more positive note, active managers have been much less impacted by redemptions than ETFs, which often traded at levels well below their net asset value. Bond markets are gradually returning to normal thanks to the actions of the central banks, but market conditions remain very challenging nevertheless for the riskier segments.The performance of equity funds was very heterogeneous. US value and frontier markets were the biggest detractors while Japanese equities, US Small Caps, Healthcare and US Growth managed to limit the drawdowns.

During the month, we opportunistically took advantage of the steep drop of the price of gold to reinitiate a position in physical gold for some portfolios. Negative real interest rates, currency debasement concerns and exploding budget deficits should all provide a supportive framework for real assets such as gold.

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Newsletter | March 2020



Investment perspective

If January was an eventful month, February proved to be much more dramatic as virus fears gripped the markets. Equities ended the month in freefall and the slide of bond yields accelerated. During the last week of the month, the 10-year Treasury yield dropped by a whopping 32bps to fast close in on the psychological level of 1%, whereas the major equity indices fell by around 12%, their worst weekly drop observed since the great financial crisis in 2008. The MSCI World Index, in local currencies, posted an 8.2% monthly loss. The 10-year Treasury and Bund yields fell by 36bps and 17bps respectively to end-February levels of 1.15% and - 0.61%. In the commodity space, oil prices dropped into bear market territory while technical factors prevented the price of gold from benefiting from the lower real yields and from a weaker dollar.

The end-February plunge of equity markets was extremely violent as it was the fastest US stock market correction in history; the S&P 500 dropped by 12.8% in just seven days of trading, wiping out over five months of gains, with the Dow Jones Index closing down by more than 1’000 points twice in a week. As was the case in December 2018, markets were totally driven by sentiment and a self-fulfilling negative spiral relentlessly drove prices lower. The dollar was another asset that was badly impacted by the end-of-month events. The collapse of Treasury yields and high Fed rate cut expectations were the main drivers for the sudden depreciation of the dollar as it rapidly lost more than 2% against the euro, from 1.079 dollars per euro on February 20 to 1.103.

The impact of the coronavirus on economic data is only starting to produce its effects; Chinese official and Caixin PMI Manufacturing numbers for February have plunged to levels well below those observed during the financial crisis. Upcoming data worldwide will increasingly reflect the contraction of business activity, reduced travel and supply chain disruption.

Investment strategy

The outbreak of the COVID-19 virus represents a totally unexpected and unforeseeable event, otherwise known in capital markets as a black swan event. We are not qualified to be able to predict the final outcome of the virus outbreak but things are likely to get worse before they get any better. Following the violent end-of-February correction of equity markets, the first week of March looks more like a roller-coaster with huge swings in both directions; it is likely that it will take some time for markets to stabilize.

In view of this extreme level of uncertainty, we have decided not to cut our equity allocation but to buy some protection. This tactical decision allows us to maintain our equity exposure which is based on our long-term outlook. It also contributes to mitigate portfolio losses were the ultimate impact of the virus outbreak prove to be much more damaging to the economy and to financial markets. Were markets prove to be resilient, the purchase of this protection will represent an opportunity cost for the portfolios, a limited price to pay in view of the potential drawdown of equity markets in a worst-case scenario.


Portfolio Activity/ News

Following a strong rebound of risky assets during the first half of February, the remainder of the month proved to be much more hurtful to the performance of the portfolios. Only a small number of positions produced positive contributions; it was nevertheless reassuring to observe that some hedge funds ended with monthly gains. All equity funds ended in negative territory, unsurprisingly. Japanese equities were the worst detractors while emerging markets’ ones fared better in relative terms; we still believe that the valuations and the upside potential of both asset classes will be supportive when markets eventually regain their composure. The drop of most credit funds was contained in view of the widening of credit spreads, especially as a result of lower risk-free rates.

At the very beginning of March, we took advantage of a strong bounce of US equity markets to strengthen the portfolios by purchasing an end of June S&P 500 Put. The impossibility to predict the ultimate impact of the spreading of the COVID-19 virus on economic activity and on corporate earnings in the upcoming months led us to buy protection.

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News Flash | 3rd March 2020

Following our news FLASH published last Friday, the rebound of equity markets has been most welcome.

Equities got off to a strong start this week, with a 5% gain for US equities on Monday as well as an initially positive reaction to the Federal Reserve’s announcement to cut rates by 0.5% today; while anticipated by the markets, the FED’s decision has been taken exceptionally before the planned 18th March meeting and reflects the high level of concern of the US central bank in view of the spreading of the Covid-19 virus.

This equity bounce has provided us with a window of opportunity to strengthen portfolios and we have bought some protection at a cheaper cost than during last week’s sell-off. This tactical decision allows us to maintain our equity allocation. It also contributes to mitigate portfolio losses were the ultimate impact of the virus outbreak prove to be much more damaging to the economy and to financial markets. If markets were to prove resilient to the ongoing crisis and be little affected, the purchase of this protection will represent an opportunity cost for the portfolios, a limited price to pay in view of the potential drawdown of equity markets in a worst-case scenario.

The spreading of the virus will continue to trigger decisions by governments and corporations that will further hurt economic growth and raise the chances of a recession. The impact of these measures is impossible to predict, hence our decision.

News Flash | 28 February 2020

Since the middle of February, equity markets have been rattled by fears over the potential impact of the coronavirus on economic activity and on corporate earnings. Major indices have plunged by around 13% this week and one must go as far back as the financial crisis in October 2008 to observe a worse weekly correction, reflecting the severity and the velocity of the recent move; year-to-date performances of the major indices now range from - 6% (Nasdaq Composite) to -12% (Japan Topix). Market sell-offs are inherent to the equity asset class and historical analysis shows that these corrections have resulted in an average decline of 13% for the S&P 500  since WW2; to try to time such moves is a fool’s game and the latest sell-off has also likely been compounded by profit-taking on richly valued equities following a strong rally, technical selling and month-end rebalancing.

The current behaviour of markets is quite similar to the one observed at the end of 2018; they are being totally driven by sentiment and a self-reinforcing negative spiral appears to be setting in. We consider that they are becoming irrational as the ultimate fallout from the coronavirus is impossible to predict; the impact of this exogenous shock will impact economic activity in the first quarter severely but is likely to prove to be only temporary, like many times before.

We are fundamental long-term investors and are preparing to take advantage of attractive opportunities in a number of sectors and stocks that would result from an overshoot of this market correction; this would take our current neutral equity allocation to overweight. We are also paying particular attention to corporate credit in view of extended valuations and eventual unintended consequences and the uncovering of unknown issues due to leveraged balance sheets.

As always we reserve the right to change our investment outlook and to adjust our asset allocation according to the evolution of the situation and as governments and corporate leaders continue to react to the spreading of the coronavirus.

Newsletter | February 2020



Investment perspective

January was an eventful month which ended with equity markets declining and with bond yields tumbling. The MSCI World Index, in local currencies, dropped by only 0.3% but this performance does not reflect the dispersion observed across the different regions; the resilience of US equities resulted in a modest 0.2% loss for the S&P 500 whereas the MSCI Emerging Market Index lost 4.7%. The 10-year Treasury and Bund yields fell by 41bps and 25bps respectively to end-January levels of 1.51% and - 0.44%. In the commodity space, prices were much weaker, with energy ones being hit particularly hard, while the price of gold logically appreciated on the back of falling bond yields.

Despite their monthly declines, equity markets proved to be resilient. They have already had to face an escalation of geopolitical tensions in the Middle East as well as the outbreak of a fast-spreading acute respiratory syndrome in China. These events failed to push equity prices significantly lower even if the levels of technical indicators showed that markets were overbought and in need of a breather. US growth stocks have continued to lead the way and were helped by the reporting of better-than-expected Q419 earnings. Out of the 300 S&P 500 companies having already reported their fourth-quarter earnings, 74% have reported positive earnings’ surprises, with EPS (earnings per share) on track for a YoY growth of 3% compared to expectations of 1.9%. The reporting of European companies has also been supportive, with 55% posting positive sales surprises and 58% better-than-expected earnings.

Sovereign bond markets appear to reflect a more cautious outlook than equity markets. In relative terms, the decline of government bond yields in January exceeded the limited drawdown of equities and yields have not rebounded back to their early-year levels; in contrast, equity markets have rallied at the beginning of February and are back in positive territory.

The early-year spike of oil prices, due to the escalation of US-Iran tensions, seems like a very distant memory. The chart shows that prices have since fallen by more than 20% as a result of concerns about a slowdown in oil demand, on the back of the coronavirus outbreak. According to Bloomberg, Chinese oil demand has dropped by around 3 million barrels a day, or 20% of its total consumption. Reports that Saudi Arabia was pushing OPEC and its allies for another cut in crude production failed to provide support for prices.

Investment strategy

As a reminder, we have started 2020 with a more dynamic positioning of the portfolios. In December, we had boosted the equity exposure to an overweight allocation and also added a high-octane emerging market corporate debt fund to the fixed-income asset class. This meant that we were carrying more risk in view of our constructive view on the global economy and on market conditions.

The outbreak of the coronavirus in the city of Wuhan, the capital of Central China’s Hubei province, was an exogenous and unpredictable event; its ultimate impact is difficult to assess, but it will clearly affect China’s first-quarter GDP, in spite of various supportive measures taken by the Chinese authorities. We nevertheless decided not to change the structure of the portfolios as we did not anticipate a severe drawdown of equity markets. At the time of writing, markets have recovered their positive trend and appear to be in agreement with our bullish view.


Portfolio Activity/ News

January turned out to be quite a frustrating month as the portfolios had been performing well until the outbreak of the coronavirus in China. Unsurprisingly, emerging market and Asian exposures figured amongst the portfolios’ largest detractors, whereas US growth stocks and US small caps produced significant contributions as did longer duration and convertible bonds. Two Japanese equity funds were hit particularly hard, unfairly in our view, and we continue to see value in this asset class. The new emerging market corporate debt fund, which had been approved in December, fared well and ended the month up by 2% in dollar terms.

Both convertible bond funds produced positive monthly returns and we consider this asset class to be a very attractive proposition in the current market conditions. It is also interesting to observe the differences between the market structure of the different regions. European convertibles generally have a higher credit rating and tend to be issued by more established companies whereas US ones are often rated high-yield and issued by faster growing companies in sectors such as technology and biotech.

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Perspectivas de Inversión 2020

Resumen de nuestras Previosiones

2019 ha sido un año excepcional para los mercados financieros 

El año pasado fue una añada excepcional para los mercados financieros donde se han observado resultados excelentes en todas las clases de activos. El temor de una recesión y la preocupación por un endurecimiento de la política monetaria de la Reserva Federal que habían provocado una fuerte corrección de los mercados en el último trimestre de 2018 desaparecieron nada más empezar 2019, lo que dio lugar a una gran recuperación de los mercados de renta variable y bonos. 

El giro radical del Banco Central americano, el optimismo por un acuerdo comercial entre Estados Unidos y China y el menor pesimismo sobre la situación económica fueron los mayores impulsores de las ganancias extraordinarias en renta variable. El punto bajo de la corrección en renta variable de finales de 2018 dejó más margen para repuntar en 2019. La postura acomodaticia de los bancos centrales mundiales y la presión por la baja inflación también contribuyeron a unos resultados muy superiores a la media en los mercados de bonos y de crédito, mientras que las oscilaciones en los mercados de divisa fueron en general modestas, sobre todo en los cruces de divisas más importantes. 

Los bancos centrales vuelven al rescate 

Más de la mitad de los bancos centrales tienden ahora hacia la aflojamiento, el mayor número visto desde la crisis financiera, y cerca de dos tercios de todos los bancos centrales recortaron los tipos de interés durante el tercer trimestre de 2019. El giro tan radical que mostró la Reserva Federal en su política monetaria fue uno de los mayores detonantes del repunte que experimentaron los activos financieros el año pasado. El Banco Central Estadounidense había previsto dos subidas de los tipos de interés para 2019 y sin embargo acabó con tres recortes de 0.25 % y el fin prematuro de la contracción de su balance. De hecho, el balance de la Reserva Federal volvió incluso a crecer en septiembre. El Banco Central Europeo también dio una inyección monetaria pese al poco margen de maniobra que tenía. En septiembre, el banco decidió bajar los tipos un 0,1% para situarlos en el 0,5% y resumir así las medidas acomodaticias (20.000 millones de euros al mes) e introducir otras medidas de apoyo. 

Las perspectivas para la economía mundial parecen algo más favorables 

Ya se preveía la deceleración del crecimiento observado en 2019. Sin embargo las perspectivas económicas parecen ahora más prometedoras. La menor tensión comercial debería llevar a la firma de un acuerdo limitado entre Estados Unidos y China. Los últimos datos económicos también empiezan a mostrar signos de mejora en el sector manufacturero mientras que la solidez de los mercados laborales debería prolongarse y apoyar el gasto del consumidor. El riesgo de recesión también ha disminuido de modo que la combinación de todos estos factores podría suponer una grata sorpresa para la economía en 2020. 

Las condiciones actuales de los mercados favorecen los activos arriesgados 

Creemos que los mercados financieros deberían empezar 2020 con buen pie y hace poco ampliamos nuestra asignación a renta variable. Los inversores estarán más dispuestos a aumentar su asignación a activos arriesgados a falta de alternativas más atractivas. Sin embargo se debe tener en cuenta que el punto de partida para el rendimiento de las inversiones es mucho menos prometedor que hace un año cuando la valoración de la renta variable y los instrumentos de deuda de alto rendimiento se desplomó. Esto implica que el precio de los activos está más expuesto a las decepciones dado que las políticas monetaria y fiscal ya han adelantado una parte importante del crecimiento y los rendimientos futuros. 



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