Drop in our equity funds: Altex Momentum -1.89%, Altex Quality -4.96% and Altex P. Growth -8.86%. In volatility, Altex Tactical was down -2.21%.

Markets:

US indices lost momentum halfway into the month, hurt by the inflation data that was higher than expected, fueling fears of the inflationary effect of tariffs.

The month closed with S&P 500 at -1.42%, Nasdaq 100 at -2.76% and Eurostoxx 50 at +3.34%.

This correction is the first side effect of The Trump Plan, which has nothing to do with pursuing a recession, as some insist on saying. Trump is looking to improve US finances at all levels -government and corporations- and he only knows one way to do it, the same he would use when managing a company: reducing expenses and increasing revenues.

At the government level, he is reducing public spending by means of the renowned DOGE (Department of Government Efficiency) led by Elon Musk, while he is trying to increase revenues through tariffs, a tax that will be borne unevenly by US and foreign companies: for the locals it will mean a surcharge on their imports, which they will try to recover, as much as possible, from suppliers and customers.

At the business level, Trump is aiming to lower the Government’s competition against companies in the private sector in the labor market, by reducing public hiring, and in the production of goods and services, by interrupting activities that private companies can satisfy more efficiently, while competing on equal terms.

The objective of these measures is to reduce public debt in the medium term, and to achieve a balanced budget in 2026, to lower inflation, with less competition from the Government in resources that are scarce for companies –such as workers and high value-added services–, and to encourage the creation of a strong industrial fabric in the US by discouraging imports via tariffs.

In the short term, raising taxes (tariffs) and lowering public spending will put a check on economy, on top of the policies the FED is still applying (restrictive rates and balance sheet reduction). In the long term, the US economy will have a lower deficit, lower debt, and lower inflation, which will be positive for the stock markets and the US Dollar.

In Europe, the plan seems to be quite the opposite: Trump’s pressure on the EU to take on more military spending has translated into their issuing more debt to finance defense. This is expansionary in the short term but inflationary in the long term. Although both European stock markets and the euro have had positive starts, the long term is not as upbeat as it may now seem.

Zelenski’s move to seek more support from Europe to stand up to Trump has divided NATO and will complicate the final settlement of the war. Advances will be made, but it will not be easy to reach an agreement that satisfies all. It seems that there are important interests at work among Ukraine’s allies and that they are taking steps to not miss their slice of the pie.

Focusing on markets, small and medium-sized companies suffered the most in February and Mega-caps also fared worse than the index average.

By factors, the most defensive companies, Low Vol Equities and High Dividend, rose strongly. At the bottom of the list, Growth, especially in small companies. The Value and Quality factors performed well, finishing almost flat, although only in large companies.

By industrial sectors, defensive sectors –consumer staples, utilities and healthcare– also performed better. Energy and Real Estate also had a good month thanks to the spike in inflation. The worst performers were consumer retail, consumer discretionary and technology.

Among the Mega-caps, Nvidia and Apple were up, while the rest were negative, the most significant losers being Tesla and Alphabet (-27.59% and -16.54%, respectively).

The U.S. 10-year bond fell from 4.5% to 4.2%, reflecting higher fears of an economic slowdown than of higher inflation.

The euro strengthened slightly against the dollar (+0.17%).

Outlook and positioning:

We are entering the corrective phase of the first quarter. The uncertainty generated by political decisions on both sides of the Atlantic is negative in the short term.

We do not think that we should give a high probability to the recession scenario, and we will be on the lookout for interesting buy opportunities.

Our investment processes are very disciplined. At the end of February, with almost all corporate results published, we rotated the portfolios of our 3 funds –Altex Momentum, Altex Quality and Altex P. Growth–. We overweight industrials and consumer discretionary, underweight technology in large companies, while overweighting it in small companies. We have exited companies with the worst momentum to enter those with a more bullish profile. We have also reduced our exposure to the USD, increasing our weight in European companies. The defense sector is one of the sectors we have increased.

In Altex Momentum we made an even more significant rebalancing by reducing the Growth exposure from 50% to 25%. We concentrated exposure in the Dynamic Growth block and eliminated the Long-Term Growth block, as its short-term potential seems to be run out. The fund is now equally weighted in 4 blocks: High Book Return, Shareholder Yield, High Margin and Dynamic Growth. The number of stocks fell from 70 to 40 and the hedging changed from 65% S&P 500 – 35% Nasdaq 100, to 100% S&P 500 – 0% Nasdaq 100.

The hedging strategy did not contribute this month, as in sideways periods it performs worse since it is designed to hedge steeper and more trending declines. However, the first days of March seem to have been more advantageous for the DIPS strategy. When fear increases, DIPS increases our gains.