Dear customer,
As the third quarter draws to a close, equity markets continue their upward trend, while many observers watch with concern as geopolitical and economic disorder reaches levels unseen in decades.
One feature of this disorder is the loss of confidence in the U.S. dollar, which by the end of September had depreciated by -11.76% year-to-date against the euro. In contrast, gold prices have surged, rising 50.24% since the beginning of the year.
In this context of geopolitical instability and investor distrust, it is more important than ever to remain focused on the fundamentals of investing—namely, acquiring assets at a reasonable value. Let us recall once again that the value of an asset is the present value of expected future income/profits/cash flows.
So, what are the key issues to keep in mind today?
A. National Debt Levels
The current trajectory of public debt is simply unsustainable unless corrective measures are taken. At EDM, many believe that a scenario of financial strain in the U.S. is no longer a risk but the base case, unless adjustment measures are implemented—measures whose unpopularity makes their adoption unlikely, except in cases of necessity.
The nervousness among holders of government bonds is also affecting other countries such as France, where the unpopularity of a multi-year budgetary adjustment is exacerbated by political fragmentation in parliament.
B. The Relentless Rise in Gold Prices
We have stated on several occasions that gold has not historically served as a hedge against inflation, but it has been a popular investment when distrust spreads among major investors. Thus, the weakness of the U.S. dollar and the strength of gold are two sides of the same coin.
C. Stock Market Indices More Polarized Than Ever
This year, the S&P 500 and Euro Stoxx 50 indices are dominated respectively by technology and related stocks in the U.S., and by banking sector stocks in Europe.
To justify the high P/E multiples of tech stocks, they must demonstrate very strong profit growth in the future. Any doubt in this regard could trigger a sharp correction.
In the case of the European banking sector, nothing suggests a change in pace compared to past returns, which have been, incidentally, not very attractive. Chart 1 illustrates this point.
EDM International – Strategy Fund vs European Bank Index
Chart 1
Source: EDM Gestión, S.A.U. SGIIC
Data obtained from Bloomberg
Outside of these segments, valuations (P/E ratios) are at historical averages or clearly attractive. We are particularly focused on medium and small European companies.
D. Democratic Authoritarianism?
The arrival of the new U.S. president has been marked by ongoing unpredictability, which so far has not been curbed by the judicial or legislative branches.
This perceived erosion of liberal democratic values is evident across various domains and is spreading to other countries.
E. Are We in a Bubble?
In this context, many wonder whether we are in a valuation bubble. No one knows the exact level at which prices have diverged so far from a rational anticipation of future profits that they constitute a bubble. At EDM, we don’t know either.
Nevertheless, over the past 12 months, we have adopted a cautious stance, aiming to include low-volatility assets—primarily short-term fixed income—in managed portfolios, providing flexibility in case of shifts in investor sentiment, especially among speculative investors.
It is worth repeating that in a market correction, no matter how deep, what is destroyed is price—not value. That is why we have reinforced our investment in shares of companies with highly predictable businesses and profits, acquired at P/E multiples we consider attractive. Chart 2 illustrates this opportunity.
Performance of EDM International Equities FI vs EPS Growth
Chart 2
Source: EDM Gestión, S.A.U. SGIIC
Data obtained from Bloomberg
We thank you once again for your trust and reiterate our commitment to ensuring that every investment in your portfolios serves as a store of value.
Warm regards,
Carlos Llamas
Chief Executive Officer
LEGAL NOTICE
1) The preceding information is provided for promotional and information purposes only. It is not, and is not to be taken as, investment or legal advice; is not intended to take the place of necessary investment advice; and is neither an offer to sell nor solicitation of an offer to buy.
2) All the views and forecasts expressed are based on what are believed to be reliable sources. Nevertheless, EDM Gestión, SAU, SGIIC cannot guarantee their accuracy or completeness and takes no liability for any direct or indirect losses ensuing from using the information provided here.
3) This information includes data on past performance of the products discussed. EDM Gestión, SAU, SGIIC calls attention to the fact that past performance is not a reliable indicator of future performance.
4) Investors should be aware that the products included in this document may not be suitable for their specific investment objectives, financial or asset position or risk profile. They should therefore make their own decisions in the light of these circumstances and seek such specialist tax, legal, financial, regulatory, accounting or other advice as they may require.
5) It is hereby noted that the instruments covered by this information are subject to possible effects due to various common causes, such as:
- Market disruptions due to unforeseeable circumstances.
- Liquidity and other risks that alter the performance of the investment.
6) This documentation may contain data based on currencies other than those used by the recipients of the documentation. Therefore, the possibility of any upward or downward change in the value of the currency and its impact on the results of the proposed products or instruments must be considered.
7) For each of the Funds of EDM Gestión, SAU, SGIIC, a full prospectus, the document containing the key investor information, periodic reports and the latest audited annual report are available to the public and can be requested free of charge at the registered office of the Management Company or on the website www.edm.es.
8) EDM Gestión, S.A.U. SGIIC is a Spanish public limited company registered on the Spanish Securities Market Commission's Special Register of Collective Investment Scheme Management Companies under number 49 and at the Commercial Registry of Madrid in volume 36739, page 52, sheet M-658326 and tax identification number: A-58,217,175. Its activities include discretionary portfolio management and representing, managing, and administering funds and investment companies incorporated and located in Spain.
DISCLAIMERS
EDM International – Strategy Fund is a sub-fund of EDM International SICAV, authorized in Luxembourg and regulated by the Commission de Surveillance du Secteur Financier (CSSF) (registration no. 851). The Management Company is Waystone Management Company (Lux) S.A., subject to CSSF supervision. The sub-fund is actively managed and marketed in Spain by EDM Gestión S.A.U., S.G.I.I.C. (CNMV registration no. 49). It is classified as an Article 8 SFDR sub-fund. The fund has a risk profile of 4 on a scale from 1 to 7. Over the past five fiscal years, Class L has achieved the following annual returns: 2020: 0.28%, 2021: 29.23%, 2022: -17.81%, 2023: 26.01%, 2024: 8.58%
EDM International Equities FI is an investment fund authorized and regulated by the Comisión Nacional del Mercado de Valores (CNMV) (registration no. 2817) and actively managed by EDM Gestión S.A.U., S.G.I.I.C. (CNMV registration no. 49). It is classified as an Article 8 SFDR fund. The fund has a risk profile of 4 on a scale from 1 to 7. Over the past five fiscal years, Class L has achieved the following annual returns: 2020: 1.95%, 2021: 5.07%, 2022: -14.98%, 2023: 24.40%, 2024: 13.28%. In 2022, significant changes were made to the investment policy. Therefore, data prior to 2022 are not representative under the current investment strategy.
