The last few weeks have been all but ordinary. The long series of geopolitical events obfuscated the view over investments. These events triggered a risk-off and induced some hyperventilation to investors. We took the opportunity for starting piling up quality investments that will be the core positions in the years to come.
It is crucial in periods like these to focus on both the threes and the forest, trying to pick the right threes for building your house and observe the right wood.
The forest (the macroeconomic data), now is a bit dark and scary but, it might be mostly in our head. Most indicators are still in expansionary mode. Markets are just reassessing the growth estimates as a whole. These might be lower in 2019.
Real-time US GDP growth estimates are not lower than the past years. Interest rates, on the other hand, are higher. This compresses prices both bonds and stocks.
I don't enter here in the macroeconomic labyrinth because it is clear that we are entering the late stage of the economic cycle.
As I said, we are piling up investments in value names with solid numbers that outperform the market as soon the sun shines again. At the same time we exiting as many we can positions that are less attractive.
We lost interest in the Aerospace sector relative to the S&P 500.
Growth perspectives are better in Europe than in the US.
Specific turnaround stories like SES Group are defensive investments in high cash flow environments.
In general, we are leaving apart our cyclical choices for more defensive one. The satellite operation industry is one of these but also Pharmaceutical.
Likewise, some bonds like Talisman/Repsol have been recently upgraded to positive outlook by S&P. It took two years to have this payback but it finally happened. Now that the Talisman ad the Repsol curves are aligned, we expect now the whole Repsol curve to finally converge towards the USD BBB one.
We are wait on the riverbank for the right level for entering a number of ideas.
GBP and inflation. We bear the short term volatility as we expect UK inflation to raise in the coming months. At the moment real rates are deeply negative.
The next weeks will be infested by the developments on Brexit though. We don't expect Tories oust Theresa May at this round; it would be political suicide.
Finally, we lost an opportunity in the recent rally of gold. There will be other opportunities if:
a) tomorrow Draghi confirms a mildly awkish approach.
b) markets calm down a bit an become willing to risk again
We will reconsider it at the following levels: 120 and 1208.
Please contact us directly for further details.