This year, August braved the traditionally high market volatility, returning to its bullish trend after a short-lived minor correction mid-month. Considerable rises in our three funds:
- • SF Real Return +2.13% (+9.78% YTD)
- • SF Prudent Growth +1.75% (+18.65% YTD)
- • SF Quality Stocks +1.69% (+22.38% YTD)
- • Vs MSCI World +2.80% in EUR (+20.91% YTD in EUR)
Over the years we have mastered portfolio protection and crises management, which are usually investors’ main concerns. Even so, managing recoveries can be as hard –or even harder– than managing crises: it is easier to identify market bottoms than ceilings, and recovery phases and bullish periods are always a challenge to reason and caution. Nonetheless, we must be pragmatic and focus on actual facts rather than on potential future expectations.
Facts we find encouraging: we are witnessing the greatest monetary expansion in history, an unprecedented period of globalization and exchange of knowledge among cultures and countries; companies leading technological revolution are posting double-digit growth, while cutting-edge companies’ growth rate is triple digit; staying fully invested has always been more profitable than entering and exiting markets; in fixed income, Central Banks have completely intervened markets, exhausting the appeal of debt assets for private investors and reducing the offer of profitable assets to little more than stocks (equity), while money continues to flow into markets.
Forecasts that are discouraging: markets will correct at some point; with all the liquidity injections, inflation is bound to soar; interest rates will rise; Chinese intervention will end up killing local companies; the price of energy will shoot up…
When setting our main investment scenario, we give more credit to what we actually see than to what we merely envisage: we favor reality over possibility, and the wisest approach to wealth protection is being invested in long-term winning strategies that are flexible enough to offset eventual market falls.
We are now entering a mature bull cycle or cycle-end scenario. This phase can last for years and offers considerable returns with less volatility than this last year’s; although markets will most probably correct, as long as there are no new issues distorting markets, such corrections should be moderate.
We began August with higher hedges, focusing on those industries we believed had lower growth potential, and portfolio returns have risen almost at a pace with markets. In September, although corrections are still a possibility, the bullish trend continues, and market volume is increasing. We are still keeping a high gross exposure (total investment volume) and a low gross exposure (unhedged equity exposure) in our flexible funds, while in Quality (unhedged equity only) we are almost fully invested. Growth sectors have a considerable upward potential we don’t see in other segments.
In currencies, we increased our USD exposure: despite rumors in the media during August, the US will recover sooner and better than the EU, which translates into bullish USD vs. EUR.
Our risk thermometer stayed in the cold zone throughout August (except for one day) and readings remain unchanged to date.
As long as market environment doesn’t change, we need to show great patience to be able to continue capturing gains. As investors, not only do we have to harden ourselves against falls, but we also have to learn to hold on when markets rally and not exit prematurely. Great wealth is acquired by accumulating time in the markets, and the current market background is still positive, while the earnings season has beat all expectations. If the best companies don’t curtail or limit their growth, why should investors?