March 2021 – Reaching the end of the pandemic

Positive month for exchanges, tough for hedges; even so, we managed to post month end positive returns on average thanks to the performance of our Quality, Momentum and Tactical strategies. By Funds: SFRR was up +1.37% (-0.77%YTD), SFPG fell –1.53% (+1.27%YTD), and SFQS posts +3.93% (+7,95%YTD) vs MSCI World +6.00% in EUR, (+8.74% YTD in EUR).

In March, news in the macro and healthcare terrains continued to be positive: vaccination rates are steadily increasing, normality is nearer, and, as a consequence, markets’ recovery is also accelerating. Staring March 2020, the first companies to recover were FAANGs, Tech, Healthcare and Consumer Staples. By summer, higher quality cyclical companies were staring to recover as well, and in October Energy and Commodities started to pick up too. In this Q12021, economic recovery has already been factored in, and markets are now speculating on when the next phase – inflation control and adoption of contractive monetary policies– will begin and whether this means that long-term bond yield and interest rates will increase. These conjectures have translated into a rotation towards highly leveraged, more cyclical and lower quality assets, such as Banks, Energy, Consumer Discretionary and Heavy Industry. All economic cycle phases, which would typically span over 5 to 8 years, have been condensed into a period of approximately18 months.

The COVID outbreak cut short a long-term bull cycle, giving place to a crisis, recovery and –yet to be confirmed– contraction sub-cycle. This time, Central Bank and Governments’ reaction to the crisis was indeed quick and efficient: never before had they been so coordinated and taken such firm joint measures. Since these joint efforts have been so efficient in curbing the crisis, we see no reason why it is not to be expected that they will continue to be so, now the crisis is ending. We do not anticipate a shift to harder monetary policies in the near future, at least not until unemployment data falls to pre-Covid levels.

Our main assumption is that the economy will gradually recovery over 2021 and that easing policies will last until the end of 2022, at the very least. As a consequence, market backdrop will be positive, the pre-Covid long-term bull cycle will be resumed, while the substantial debt Governments have incurred in thanks to the lengthening of low interest rates, is gradually digested.