We combine deep qualitative analysis by our team of investment specialists with powerful quantitative analysis from our proprietary software to inform an unconstrained approach for strong, risk-adjusted returns.
Government bond yields reached new 12-month highs during the quarter only to fall back because of a dovish hike by the Fed, the ECB being reluctant to taper any further, and a dangerous mix of political and geopolitical developments. Commodities proved a mixed bag, with precious metals bouncing back, while copper and energies were in consolidation mode.
The key takeaway from the first quarter is that the major consensus trades (US dollar, financials, industrials) underperformed despite the popularity of the reflation theme in most strategists’ research notes. The reflation theme not only remains intact, but we expect global growth to accelerate in line with healthy inflation. Consumer spending remains strong, global manufacturing and industrial production readings foreshadow positive developments in the global gross domestic product. In this context, our main theme for the second quarter – and most probably for the remainder of the year – is long equities / short bonds, with the Eurozone being one of our favourites geographies.
The French presidential elections will trigger repricing across asset classes.
Several events are important this quarter from political and economic perspectives. First and foremost: the outcome of the French presidential elections will trigger repricing across asset classes. We remain optimistic and confident that a pro-Euro, pro-free market candidate will win and this will favour our long European equities / short German bunds investment theme.
On the other side of the Atlantic, the Trump administration has now experienced fist-hand the power of Congress to apply checks and balances to the Presidency. With immigration and healthcare already between a rock and a hard place, financial markets expect more clarity on tax and trade policy within the next few months. Tax reform, regulation roll back, as well as more visibility on international trade relations will directly impact consumer spending, the labour market and the financial sector of the largest economy in the world. Upcoming G7 and G20 summits, an OPEC meeting, Iran’s presidential elections, as well a Federal Open Markets Committee meeting and the legislative actions of Congress to avert government shutdown will likely provide more fuel to the reflation trade and create more volatility in global markets.
Markets expect more clarity on US tax and trade policy within the next few months.
Our risk-on approach is not blindsided by the current political or geopolitical risks, nor by the discrepancy between current growth trends and expectations reflected by consumer or business surveys. We remain active in our approach: always trying to identify investment opportunities and avoiding myopia. The next step up in terms of risky assets will require an alignment of positive developments on political, macroeconomic and fundamental levels. It is likely that the old saying “sell in May and go away” will prove prescient, but it is equally likely that specific trends in bond or equity markets are just beginning to play out.
Our investment philosophy is that where there is risk, there is opportunity. The most efficient approach to unlock profits is active diversification on three levels: asset class, strategy, and time. A portfolio that uses a multi-asset approach and employs different strategies (directional, market neutral, systematic, fundamental) on different trading time horizons increases the probability of financial longevity significantly.
The most efficient approach to unlock profits is active diversification.
Staying true to this concept of three-level diversification, we have substantially increased the number of investment ideas we present this quarter: from the 18 we had in the last outlook to 32 in this one. We offer ideas across asset classes (global or regional, thematic or factor-based), across strategies (conventional single securities selection, long/ short, or systematic) and across time horizons (from three to 12 months).
As ever, we’re committed to our investors and our readers – and that means consistently delivering unconstrained investment expertise.
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