Monthly management comment
Macro & Politics: “Everything looks (too ?) good ”
The new year started where 2017 ended with a particularly strong macro outlook. Expected annual growth in the US is now close to 4% and the rest of the world is following with accelerating forecasts. Unemployment trends are also improving with Europe now below 9% and the US around 4%. The ECB has followed the Fed in tapering its massive QE program and the FED in-creased rates, as expected, in December. Al though timid for the time being, central bankers will increasingly face the turn of tide with rising inflationary pressure and the always delicate to time monetary tightening process. Forecast for 2018: Rising interest rates across all maturities (beware of dura-tion). Continued solid growth across the world. Lower EUR.
Dangers: geopolitical risk seems to dampen in Korea but increases in the middle East (we feel oil prices could continue to rise). Monetary liquidity will lower and could unsettle some credit markets.
Markets: “ Strong Equity markets with large parts of the performance concentrated on a few leading sectors and stocks ”
US stocks had a brilliant run in 2017 in USD terms (+19%) but approx. 6.5% EUR. The rest of the indexes also made considerable returns but the Swedish OMX (our favorite market) only gained 3.9% (flat in EUR). Aulien was up +1.3%.
Some sectors did not participate into this rally: utilities, healthcare.
The market breath is also rather narrow with a large portion of the perfor-mance concentrated on some high-profile companies such as FANGs and other innovative market leaders.
We feel this trend will continue in a technologically disruptive world where the first player, strong enough to take a significant market share grabs the most substantial part of the profits.
Bond markets delivered a mixed bag of results with High Yield and emerg-ing providing good results while traditional investment grade maintained its anemic yields.
Forecast for 2018: strong Equity markets on the back of investment and tax friendly policies, at least until 3Q 2018.
Dangers: valuations are obviously rich and those companies not capable of delivering earnings will be punished swiftly and sharply.
Investment Themes & Favorite stocks: “The winner takes it all”
We have gradually built an exposure to several Technology Stocks that we believe will profit from high growth / high margin for the upcoming years while disinvesting from more traditional value stocks (such as H&M and Roche).
Our main conviction is that Asia will continue to outpace the rest of the world when it comes to growth and competitivity. Our core positions include Chinese leaders such as BABA ,+97% in 2017 & +9.9% YTD18, (we also follow Tencent and CAF) but also other Asian markets such as Vietnam and Japan (Fanuc +35% in 2017 & +13.6%YTD).
We also keep an over weighted exposure to commodities as long as the strong economic cycle remains with holdings in Boliden, Royal Dutch a com-modity ETF as well as indirectly through a Russian ETF.
Other companies we like include Evolution (+130% in 2017), Intuitive, Novo Nordisk and Saab.
We take this opportunity to thank you for the given trust and to wish you a wonderful and successful New Year 2018.