Markets:

In March, indices were negative, dragged by the uncertainty the announcement of tariffs were beginning to generate, and that finally took place on 2 April.  The month closed with S&P 500 at -5.52%, Nasdaq 100 at -7.69% and Eurostoxx 50 at -3.94%.

Volatility increased throughout March, as the tariff announcement date (2 April) approached. At the time of writing, we know that the tariffs have been much worse than expected and that China is applying the Talion Law: an eye for an eye, a tooth for a tooth.

If tariffs persist over time, they will have a very negative effect on the economy. Tariffs are taxes that directly affect US companies and citizens importing products or services. The impact must be absorbed among importers, foreign customers and suppliers, and those importers without the necessary bargaining strength might go out of business.

The natural correction mechanism for trade inefficiencies is currency itself. Although a high, across-the-board tariff should cause the currency of the exporting country to devalue against the importing country, we are not seeing that effect. We are living a trade war between the US and China, and it seems to be spreading to bonds and currencies.

The best refuge now to avoid exiting at bad market times is our DIPS hedging system, which trades short S&P 500 and Nasdaq 100 futures. As of 31 March, it accumulated a contribution of +3.95%, +4.25% and +4.83% for Altex Momentum, Quality and Growth, respectively.

The USD and equities detracted from performance, weighing on the year’s result. As the crisis deepens, the hedging system will accumulate more gains while reducing the weight of equities and USD in the fund, and we will tactically invest excess cash.

By factors, the only one in positive territory was Low Vol Equities +0.41%, followed by High Dividend -1.34% and Value Big Caps -2.78%. Worst performers were, Growth, both in large companies -8.39% and small companies -7.55%.

By sectors, it was a good month for Gold Miners +15.7%, Energy +3.5%, and Utilities +0.2%. A bad month for Artificial Intelligence -11.3%, Semiconductors -9.2%, and Technology -8.3%.

Emerging Markets closed well, with India and Brazil gaining +7% and +6%, respectively. China Large Caps ended +1.73%, although, later on, it was one of the biggest losers of the tariff war.

Among the Magnificent, Microsoft held up best with -5.44%, while Nvidia and Meta plunged, -13.23% and -13.67%, respectively. This year, both companies have been major drags on indices.

The US 10-year bond was almost unchanged, with a yield of +4.21% for the month.

The EURUSD rallied +4.25%, ending the month at 1.0815. This was a major detractor for the funds. Our hedging strategy remains long USD as the currency has continued to oscillate in the same sideways range during the last 3 years.

Outlook and positioning:

At the time of writing, we are already in the midst of the trade war initiated by Trump. Volatility is at an all-time high, comparable only to the Covid crisis in the recent past.

As markets are unpredictable –they change at the stroke of a tweet– we remain resolute in the execution of our strategies, while exercising maximum vigilance. We remain moderately positive over the medium term despite the extreme volatility markets are experiencing. In this scenario, we will manage the excess cash hedging is generating in the funds as an additional safety cushion.

Futures shorts are the only instrument that seems to protect well as markets, bonds and the US dollar have a very high correlation. Markets decline due to uncertainty and fears of recession, while bonds and USD also fall in April dragged by portfolio deleveraging, and a possible long bond sale by China’s central bank, which could redirect its balance sheet exposure to Germany and Japan.

However, thanks to our tools we are managing portfolios more objectively, with clear rules on how to act with each market movement. We recommend investors to stay calm and maintain their positions, as this is a crisis similar to war-time crises: It can potentially cause severe damage, but it is also susceptible to abrupt changes brought about by negotiations.