Newsletter | August 2023
THE US DOLLAR HAS ERASED ITS JUNE GAINS AGAINST THE EURO IN JULY
+ 10.4% THE PERFORMANCE OF COMMODITIES IN JULY
Investment perspective
In July, fixed income recorded positive returns across all sectors except for the U.S. long-dated Treasury sector (-2.2%), while global equities were up 3.7% in U.S. dollar terms. The key takeaway from July was the broadening of returns. The U.S. large cap index gained 3.1%, while the equal weighted gained 3.4%, beating the market cap weighted index for the second month in a row. The U.S. small-cap index delivered stronger gains with an increase of 6.1% for the month. Typical value sectors posted gains with energy up 7.3% and financials 4.7%, while Healthcare lagged (+0.9). Emerging market equities posted strong returns, thanks to a Chinese equities rebound of +10.8% in U.S. dollar terms. As widely expected, the Fed increased interest rates by 0.25% to 5.25% - 5.50%. In Europe, the ECB also lifted its deposit and main refinancing rates by 25 bps, to 3.75% and 4.25%, respectively, in line with market expectations. The ECB opened the door to the possibility of a pause in September. This dovish shift was probably due to falling eurozone inflation and weaker activity with manufacturing PMI at 48.9 in July. In this context, the U.S. dollar weakened against major European currencies while recording strong gains against the Japanese and Chinese currencies. Above all, the highlight of the month was the strong return recorded in the commodity complex (+10.7) – particularly in the energy sector (+16.0%). Market expectations relative to the path of the Fed’s monetary policy have shifted significantly since the beginning of the year. After its meeting last month, the Fed said that it would watch incoming data and study the impact of its rate hikes on the economy. The terminal rate market expectation currently stands at 5.4% in November and the first rate cut in 1Q-2Q 2024.
Investment strategy
Our portfolios benefited from the positive returns recorded across developed equity markets as well as emerging markets, including China. Like many investors, we have been surprised by the strength of equity markets, in the face of rising interest rates. Despite recent market upswing, we are convinced that the full effect of the central bank’s tightening cycle – which, in the U.S. tends to lag economic activity by 18 to 24 months – has yet to be felt across the economy. In addition, the yield curve has in-verted further, which is historically inconsistent with an economic recovery. A key takeaway from July was the broadening of returns and market rotation, marking the second month in a row where the U.S. large cap equal weighted index outperformed the tra-ditional U.S. large cap market weighted index. As the equity rally broadened beyond mega cap technology stocks, the volatility index fell to single digits, which was the lowest monthly reading since December 2019. We reiterate our defensive stance as we see risks building on the horizon that are not fully priced in by the market. In this context, we maintain our underweight exposure in equities with a preference for defensive strategies.
TREASURY YIELD-CURVE INVERSION NEARS MOST EXTREME SINCE 1980s
Portfolio Activity/ News
We have kept our asset allocation broadly unchanged in July, but we have done extensive work within each asset class to reflect the market dynamics and rotation. In equities, we took advantage of the recent market strength to reduce our exposure to technology as well as certain others thematics, including U.S. Small Cap Growth, and reallocated the proceeds into the S&P 500 Equal Weight and respective domestic markets across reference currencies. We reduced our positions in multi-strategy hedge funds and reinvested the proceeds into global macro and trend following strategies. Our hedge fund exposure temporarily decreased after the reduction of our event-driven bucket. The proceeds have been kept in cash pending the reinvestment in a risk parity strategy. We pared back our gold and convertible bond positions. Within fixed income, we have gradually increased our existing positions with a preference for flexible managers as uncertain-ties over the evolution of interest rates remain elevated.
Download the Newsletter
Perspectivas de inversión 2023 | Repaso y previsión semestral
Resumen de nuestras previsiones
Los activos arriesgados prosperaron
Tras un duro 2022 para los activos tradicionales de renta fija y variable afectados por el vertiginoso ritmo y la magnitud de las subidas de los tipos de interés encabezadas por los bancos centrales de Estados Unidos (Fed) y Europa (BCE), la primera mitad de 2023 les supuso un alivio gracias a la fuerte rentabilidad de los activos financieros pese a una actividad económica poco inspiradora, especialmente en Alemania y China. Los bonos del Estado y los bonos con grado de inversión empezaron el año con resultados razonables, mientras que las materias primas sufrieron debido a las preocupaciones por el crecimiento económico. Los principales índices de renta variable en Estados Unidos, Europa y Japón arrojaron fuertes resultados, pero las diferencias en los resultados entre sectores y acciones fueron especialmente notables. La dispersión en los mercados de renta variable se acentuó durante el segundo trimestre. Después de haber presentado excelentes resultados corporativos, el derrumbo de algunos bancos en febrero y marzo puso en evidencia el daño que puede hacer una rápida sucesión de subida de tipos a los balances corporativos.
Un mercado de renta variable monopolizado por un par de acciones
Las carteras concentradas que estaban principalmente expuestas a las acciones tecnológicas se vieron recompensadas. Las ganancias de este año se deben a tan solo un puñado de acciones tecnológicas pese a los tipos más altos. Es más, las siete empresas más grandes del S&P 500, todas empresas tecnológicas, han subido una media del 86% en lo que va de año. Entretanto, las otras 493 empresas del S&P 500 apenas han variado en su conjunto. En Europa, a las grandes empresas tecnológicas ASML y SAP, se han unido LVMH y L’Oreal como mayores contribuyentes al repunte del mercado y representan más del 40% del rendimiento del índice.
Crecimiento estadounidense resistente pero Alemania en recesión
A principios de junio, el Banco Mundial revisó su previsión para el crecimiento estadounidense para 2023, del 0,5% previsto en enero al 1,1%, mientras que se espera que el crecimiento de China suba al 5,6%, en lugar del 4,3% en enero. El modesto repunte de la actividad china beneficiará principalmente a los sectores de su propio país, especialmente los de servicios, con beneficios limitados para otras economías avanzadas. Se prevé ahora un crecimiento del PIB en la zona euro del 1,1% y del 1,6% para 2023 y 2024 respectivamente. El cambio positivo clave que sustenta esta revisión es la bajada de los precios energéticos y el progresivo despeje de los atascos en las cadenas de suministro.
La Fed y el BCE siguen en modo beligerante
La persistencia de la inflación subyacente ha resultado ser un riesgo importante, dado que podría derivar en un mayor endurecimiento monetario. No obstante, la bajada de los precios energéticos ha reducido la inflación general, lo que ha beneficiado a la demanda y los mercados financieros. La Reserva Federal optó por no variar los tipos en junio, pero la mayor parte de sus miembros coincidieron en que hará falta al menos otra subida de 25 puntos básicos antes de final de año. En junio, el Banco Central Europeo (BCE) subió su tipo de facilidad de depósito 25 puntos básicos hasta el 3,5% y ha dejado claro que debemos estar preparados para más subidas en la siguiente reunión de julio, mientras que el Banco de Japón sigue mostrándose conciliador y seguirá ayudando a la frágil recuperación económica pese a una inflación más fuerte de lo previsto.
Las materias primas se vuelven a debilitar
El índice de materias primas arrojó resultados negativos en el primer y segundo trimestre, proclamándose la peor clase de activos en nuestro universo de inversión con un -4,99% y un -2,48% respectivamente. Esto se debe a que los precios energéticos cayeron debido a la desaceleración del crecimiento global y por una demanda inferior gracias a un clima más agradable. Además la rápida expansión de las capacidades de GNL mitigó las presiones sobre el mercado del gas natural. Los precios de los metales básicos cedieron ante una demanda global más débil y, en especial, un repunte de la demanda más lento de lo previsto en China. Además, el suministro de metal ha aumentado la presión sobre los precios. En cuanto a los metales preciosos, el oro aportó resultados positivos (+5,23% en la primera mitad del año).
Escasas acciones en modo risk-on
Nuestra asignación defensiva mantenida durante el primer semestre favoreció las inversiones alternativas, como los hedge funds, por su capacidad de aprovechar las oportunidades durante períodos de alta volatilidad y limitar las pérdidas, o el oro, que ofrece resultados razonables durante períodos de tensión e inflación. Mantenemos nuestra asignación relativamente defensiva con una preferencia por las inversiones alternativas en lugar de la renta variable. Nuestra asignación sigue estando bien diversificada, lo que debería beneficiarse de cierta reversión a la media inevitable o proporcionar cierta protección si los mercados empeoraran.
ÍNDICE
- RESUMEN DE NUESTRAS PREVISIONES
- MEDIO AÑO 2023 : REPASO DE NUESTROS TEMAS DE INVERSIÓN
- PRIMER SEMESTRE 2023 : ACONTECIMIENTOS ECONÓMICOS Y POLÍTICOS 4
- PRIMERA MITAD DE 2023 : LOS MERCADOS FINANCIEROS
- PREVISION PARA EL 2° SEMESTRE DE 2023 : PERSPECTIVAS ECONÓMICA
- PERSPECTIVAS DE LAS CLASES DE ACTIVOS – 2° SEMESTRE DE 2023
- 2° SEMESTRE DE 2023 : IMPLICACIONES DE INVERSIÓN – ASIGNACIÓN DE ACTIVOS EN JULIO
- TABLA DE ASIGNACIÓN DE ACTIVOS – EURO – JULIO DE 2023
Descargar el documento PDF
Newsletter | June 2023
THE US DOLLAR RECOVERED ALL OF ITS YTD LOSSES AGAINST THE EURO IN MAY
+ 36.3% THE PERFORMANCE OF NVIDIA IN MAY
Investment perspective
In May most equity markets were rangebound as investors’ attention was gripped by the debt ceiling talks in Washington to avoid a default by the US government. Japanese equities continued to perform well, however, as did US growth stocks, in particular those of companies heavily involved in Artificial Intelligence. European and emerging market equities struggled and ended the month with small losses. While European bond yields were mostly stable, the Treasury yield curve shifted much higher as investors reduced some of their exposure to US debt in view of the risk of a first-ever US default; 2-year and 10-year Treasury yields rose by 40bps and 22bps, from 4.01% and 3.43% to 4.41% and 3.65% respectively. In this context, the US dollar performed well as it recouped its year-to-date losses against the euro, with a 3% return in May. Weakness was observed in commodity prices on concerns over softer global demand; the prices of industrial metals, such as copper and iron ore, fared poorly, as did oil prices, with a barrel of WTI oil dropping by more than 11%.
Market expectations relative to the path of the Federal Reserve’s monetary policy have shifted quite significantly during the last weeks. While there is a broad consensus that the prospect of further interest rate hikes appears to be very limited from now on, markets repriced their expectations in May for the end-2023 level of Fed funds. From a point where three rate cuts by the end of the year were anticipated, markets are now pricing in one rate cut only. This is more closely aligned with the Federal Reserve’s outlook as it has consistently pushed back against the idea of rate cuts this year already.
As often observed in the past, Democrats and Republicans finally reached an eleventh hour deal to avert the first-ever default on US government debt. The legislation that suspends the $31.4 trillion debt ceiling will remain in effect until 2025, when one is likely to face a similar situation once again.
Investment strategy
At the onset of summer, we are sticking to our defensive portfolio asset allocation. We remain cautious in view of a slowdown of economic activity, higher for longer interest rates, tighter bank lending standards, and the risk of rising bond yields. Following the US debt ceiling deal, a deluge of Treasury bill issuance is coming; this could drain liquidity from the markets and push bond yields higher which could in turn also impact stock prices negatively. The narrow rally of the US stock markets is also of concern based on past obser-vations. That is why we are also maintaining our diversified allocation. We are seeing some early signs that a rotation might be taking place in the markets. Strategies which have underperformed up to now appear to finally be attracting some attention from investors. It is too early to tell whether these are sustainable trends, but we see good fundamental reasons to remain invested in this way.
YIELD CURVES COULD BE UNDER PRESSURE AS US DEBT ISSUANCE MIGHT DRAIN MARKET LIQUIDITY
Portfolio Activity/ News
May was another flattish month for the portfolios as positive and negative monthly returns for the various underlying positions cancelled each other out. The best contributions were provided by the global technology fund, the multi-thematic fund, global convertible bonds, the systematic global macro strategy, and by frontier markets’ equities. For non-USD denominated portfolios, the strong appreciation of the dollar also contributed to the performance. Alternative strategies overall also added to the performance of the portfolios The main detractors over the past month were European value and Chinese equities, emerging market corporate debt as well as the specialty metals fund. As often highlighted, the performances of some indices this year are quite deceiving as they have been driven by a small number of stocks and sectors. The dispersion of performance between the value and growth styles, between small and large caps, between the different sectors, as well as between different regions is striking. As an illustration the spread of performances between our best and worst performing equity funds was over 40% as at the end of May!
Download the Newsletter
Newsletter | May 2023
APRIL WAS A MUCH LESS VOLATILE MONTH FOR CAPITAL MARKETS
- 5.9% THE GAP AT THE END OF APRIL OF A US LARGE CAP EQUAL-WEIGHTED INDEX TO A MARKET CAP ONE
Investment perspective
The month of April proved to be much less volatile than the previous one. The major equity indices of developed markets recorded limited gains, whereas emerging market equities ended with small losses. Despite the prospect of additional rate hikes, persistent inflation and signs of slowing economic growth, equities proved to be quite resilient. This was due in large part to acceptable corporate earnings which beat expectations that had been consistently lowered by analysts over the past months. Bond markets also ended with modest changes even if volatility remained well above-average, in contrast to the fast declining volatility observed in equity markets. The yields of 2-year and 10-year Treasuries edged lower by 2bps and 5bps, respectively, to end-April levels of 4.01% and 3.42%, with Bunds behaving in a very similar manner. With markets still anticipating a number of rate cuts by the Federal Reserve in the second half of 2023, following a final 25bps hike in May, the US dollar continued to depreciate against other major currencies; the EUR/USD parity appreciated by 1.7% to end the month at 1.102.
With more than 85% of the S&P 500’s market cap having reported, earnings have beaten estimates by 6.6%, with 77% of companies topping projections. Earnings per share growth is on pace for - 1.3%, assuming the current beat rate for the rest of the season. Sales have beaten estimates by 2.8%, with 67% of companies doing better than expected. In Europe, the earnings season is somewhat less advanced but, out of the companies having already reported their results for the first quarter, 64% have beaten earnings’ estimates and 65% sales’ expectations. Overall, these results have been supportive for equity markets, especially as most of the US mega-caps beat expectations. The results of companies such as Microsoft, Apple, Alphabet, Meta Platforms, Exxon Mobil and JPMorgan Chase were cheered by markets and contributed to the outperformance of their stock prices in April.
Investment strategy
We maintained our defensive portfolio asset allocation in April. We remain sceptical about the potential for much higher equity markets in the near term, due to an expected slowdown of the economy, tighter bank lending standards, and markets’ overoptimistic anticipation for Fed rate cuts in 2023. We continue to observe sticky inflation data and the main central banks will not want to take the risk of making a policy mistake by cutting interest rates too early. If they were to cut rates, in contrast to their current outlooks, it would be because of pronounced weakness of the economy which is not being discounted by equity markets at present. We also believe that long-term bond yields could increase from the current levels. In that case, it would allow us to increase our fixed income allocation as well as the portfolios’ duration.
THE MARKETS’ EXPECTATIONS FOR 2ND HALF RATE CUTS DO NOT MATCH THE FED’S POLICY PATH OUTLOOK
Portfolio Activity/ News
April was a flattish month for the portfolios as monthly changes for the different positions tended to be limited and ended up by neutralising one another overall. The medtech and services fund provided the best contribution, with European value equities, the real assets fund, defensive equities, and the trend-following CTA strategy also producing some positive contributions. The main monthly detractors were the global technology fund, global convertible bonds, Chinese equities, the multi-thematic fund, as well as the emerging market corporate debt fund. With the exception of global convertible bonds, all the other fixed income positions generated small positive contributions. Alternative strategies also added to the performance of the portfolios even if gains were modest. For non-USD denominated portfolios, the depreciation of the dollar meant that it was a detractor.
Download the Newsletter
Newsletter | April 2023
STRESS IN THE BANKING SECTOR PUSHED YIELD CURVES MUCH LOWER
4.35% THE EXPECTED END-YEAR LEVEL OF THE FED FUND RATE
Investment perspective
The month of March was most eventful for capital markets. Three US banks collapsed following a run on their deposits and the Swiss government forced through the takeover of the 167 year-old bank, Crédit Suisse, by its rival UBS. This banking turmoil triggered a fall of equity markets and a plunge of bond yields. Markets also quickly repriced their expectations relative to the Federal Reserve’s hiking cycle, with rate cuts being anticipated for the second-half of 2023, once again. US federal authorities intervened quickly to protect both insured and uninsured deposits at Silicon Valley Bank and Signature Bank to restore calm in the markets. The merger of CS and UBS also contributed to remove some market stress even if Deutsche Bank found itself under heavy selling pressure for a brief period. The second half of March saw global equity markets rebound strongly and end the month with modest positive returns. The best performing asset in March was gold which benefited significantly from lower real bond yields and a weaker US dollar to appreciate by 7.8%.
A high level of volatility has been observed in bond markets for some time now, as a result of the fast pace of monetary tightening since early 2022. The moves that took place in March, however, proved to be even more extreme. The yields of 2-year and 10-year Treasuries collapsed from early-March levels of 5.06% and 4.08% to closing lows of 3.77% and 3.38%, respectively, a most significant shift of the US yield curve. By the end of March, expectations for the end-year level of the Fed’s fund rate had also dived to 4.35%, compared to an early-March level of 5.55%. In the Eurozone bond markets, comparable trends as in the US were observed, even if to a lesser degree; markets are now pricing in a end-year ECB policy rate of 3.4%, in contrast to 4% at the beginning of March.
Investment strategy
Our defensive portfolio asset allocation was maintained through March. We were close to being able to increase our fixed income allocation as bond yields kept on rising, but their sudden drop has prevented us from making this move so far. We had also got very near to our first target on the EUR/USD parity, with the objective of decreasing our dollar exposure. Then again, the unexpected banking turmoil trig-gered a reversal of the prevailing trend, taking away the opportunity to sell the US currency. We admit being some-what puzzled by the ongoing confidence of equity markets in view of the signals sent out by the bond markets. Were the Fed to cut rates this year, as currently priced in by markets, it would be due to a deeper slowdown of the economy, not the best framework for equities. That is one of the reasons why we have kept our underweight allocation towards equities.
The past month was a mixed bag for alternative strategies, but we continue to view them as an integral part of the port-folios. This is also the case for gold which has continued to provide real diversification and to behave more like a long duration asset, bringing defensive qualities to portfolios.
THE OPTIMISM OF EQUITY MARKETS IS IN STARK CONTRAST TO WHAT IS EXPRESSED BY BOND MARKETS
Portfolio Activity/ News
March was a modestly negative month for the portfolios as equity, fixed income and alternative asset classes all posted negative returns. US and European value funds were the largest detractors in the equity allocation, whereas the global technology fund produced a strong contribution as growth stocks outperformed. Our underweight duration exposure and our preference for credit strategies meant that most bond funds ended with limited monthly changes, except for the emerging market corporate debt fund which experienced a larger drawdown. The brutal reversal of bond markets also proved costly for trend-following strategies, in reason of their very short positioning on rates. In contrast, the discretionary global macro strategy performed very well. For non-USD denominated portfolios, the depreciation of the dollar also translated into a negative contribution for the portfolios.
In March two new funds were added to the model portfolios. The first one is a US value fund which replaced our previous US value one. The reasons for this change were an under-whelming performance of the prior fund recently, as well as an overweight exposure to the energy sector within the new fund. We also trimmed our discretionary Global Macro and trend-following CTA strategies to make room for a systematic Global Macro strategy based on fundamental and price-based indicators. The fund combines carry, fundamental, trend-following and value/reversion strategies, and displays a remarkable track-record over an extended number of years.
Download the Newsletter