The economy: Anxiety and Misgivings
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The IMF recently confirmed a strong growth for 2022, albeit lower than anticipated.
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The rapid spread of new COVID variants makes it difficult to formulate reliable economic growth forecasts.
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In 2021, inflation data approached peak highs (US +7%; Europe +5%; Spain +6.5%), with average inflation rates expected to ease in 2022.
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Nevertheless, the central banks have already indicated the start of a shift and a tightening of monetary policy: given its status, the Federal Reserve represents this charge.
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The political landscape adds another element of unpredictability: geopolitics (Ukraine) and populism (United Kingdom).
Markets: Declining Stock Markets and Bonds
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US stock markets led declines with the S&P 500 and Nasdaq indices entering correction territory, posting losses in excess of 10% (relative to previous highs).
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Our funds:
- These data reflect a dramatic sector rotation with the selling-off of shares in companies with intense long-term growth (growth stocks) in favour of undervalued, cyclical companies (value stocks). Though more intense in the US, especially among tech companies, this shift is widespread, having extended to the entire market.
- At the same time, bond yields, which move inversely to prices, escalated significantly in anticipation of higher inflation, prompted by the expected monetary policy changes and the subsequent tightening of monetary policy. We will see how things unfold.
Investment policy: Sales present opportunities
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Short-term speculative investors appear fearful, presenting an opportunity to long-term investors with established opinions about the quality of top companies whose businesses will prosper for years.
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We remain confident that a portfolio invested in a selection of quality companies is the best long-term strategy, despite temporary fluctuations. It is essential to remain focused on business prospects rather than attempting to anticipate the future: in other words, stay invested.
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Though valuations (P/E ratios) of the US and European companies in which we invest had already contracted in late 2021, they grew even cheaper after January’s “technical correction”. Some share prices seem like real bargains. With the accelerated sell-off of growth shares in favour of cyclical companies, we are able to invest in outstanding companies at 10%-15% below November highs.
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The downward adjustment of bond prices provides no haven when investors are fearful.
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For investors, timing is everything. Hence, the results of our main equity funds over different durations, despite fluctuations during the period.
- In the case of portfolios under construction and given the unpredictability of current geopolitical tensions (Ukraine), it is advisable to hedge one’s bets in light of the unknown.
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