Monthly management comment
Macro & Politics: “A slow-down but not a slump ”
Recent US figures such as GDP and employment show continued strength without inflation. Europe is not as bad as some feared although Italy has entered a recession and Germany is struggling to gain steam. The endless Brexit saga is far from over but recent GBP strength show that the market seems to exclude a hard Brexit. We feel that whatever the outcome of many worrying issues is (China and Europe trade vs US / Brexit/ European elections) we will soon gain clarity and put some fog behind us. This will help investors regain some confidence.
Markets: “The fed put is still in place”
After some clumsy communication the Fed clearly announced that they would consider the concern raised by markets and probably decrease the pace of coming hikes. Markets roared on the comforting statements and showed the best monthly performance since 1987 after the worst December performance since the 30’s. All major Equity markets were up between +3.8% (Nikkei 225) and +7.9% (S&P 500) over the month.
Investors behavior, similar to a nervous breakdown, has now stabilized on the back of reassuring macro, and solid earnings. Nevertheless, we will face some headwinds as the cycle matures and the sectoral rotation should continue towards defensive stocks such as pharma or high dividend companies with strong balance sheets. Nevertheless, disruptive technologies continue to gain markets shares vs traditional industries and our allocation will continue to seek for growing tech stocks with an edge such as Intuitive Surgical, Tomra, Baba.
Forthcoming management changes: “Merge into Aulien Patrimonium will be finalized on February 8th”
There will be a substantial reallocation task in the coming weeks with reductions and liquidation of convertible and high yield bonds. The new asset allocation will have approx. 25% in individual bond lines, 35% in money market and bond funds (loan funds, high yield credit), 20% in Equity and 20% in mixed strategies such as Long/Short and some real estate. Managers should include Eleva, Tikehau and Capital Four. As for our stock picking, we currently favor Husqvarna (interesting mix of industrial items with internet of things) / Stora Enso (exaggerated correction has brought cheap valuation) and Netflix (strong growth combined with higher prices).