The economy: Confusion and uncertainty
- Despite macroeconomic data being, in many cases, contradictory, overall they confirm the notion of anaemic economic growth, which is far removed from previous negative forecasts and does not exclude occasional dips into technical recession (Germany in Q1 2023 and perhaps later in the US).
- Inflation is declining, albeit very slowly, because the service sector remains strong.
- Credit terms have tightened, contributing to a less dynamic environment, especially in the real estate sector, which is highly dependent on lending.
- China’s post-pandemic recovery is progressing slower than expected.
Markets: Dancing with the central banks
- In an attempt to anticipate the decisions of the Fed and the ECB and shield themselves from surprises, investors have created a rarefied, short-term environment.
- The unimaginable risk of a US Treasury default, sidestepped at the last moment, compounded uncertainty in late May.
- Shares experienced high volatility during the month, as did bonds, whose yields fluctuated in step with the news about interest-rate expectations.
- Overall, EDM’s funds closed May with healthy appreciations since January, after a painful slump in 2022 (see the Table on page 3). It’s positive volatility!
- Global investors have taken very defensive positions, reducing exposure to equities and investing in money market assets and short-term bonds (both sovereign and investment-grade corporate).
- It is evident that declining valuations also affect real estate assets and illiquid investments (private equity and venture capital), though with a greater delay.
Investment policy: Cover all bases
- Many investors are wondering how to structure their investment portfolios for the second half of 2023, taking into account the fact that:
- The data published is always retrospective;
- Expectations of economic growth and monetary policy vary constantly;
- We live with unknown global risks (“known unknowns”).
- Not surprisingly, many have opted to stay out of he market.
- Unfortunately, as history shows, anticipating market performance is impossible. As a result, many missed the big rebound (from 30 September 2022 to 31 May 2023).
- At EDM, we advocate a portfolio construction strategy that includes:
- DIVERSIFICATION, capitalising on higher interest rates and increasing our defensive bond (IG) position;
- Business QUALITY, focusing exclusively on those with maximum foreseeability, among both high-growth and more defensive options;
- Strict DISCIPLINE, systematically reducing positions whose valuations, though justified, are susceptible to market mood swings.
- In short, we structure portfolios in an attempt to protect against inflation (equities), though with lower volatility (bonds).
- The table below illustrates the evolution of our investment funds at the May close.
LEGAL CONSIDERATIONS
1) This information, which constitutes EDM advertising, is intended for informational purposes only in accordance with the rules of conduct applicable to investment services in Spain, and is therefore sufficient and understandable for any potential recipient. The information may refer to or entail additional, separate documentation, which you may request from EDM. If this information contains offers of products, financial instruments, or services, recipients may avail themselves to any complementary or additional documentation that enables them the comply with the terms and conditions of the offer in question.
2) EDM Gestión, S.A.U. SGIIC is a limited liability company under Spanish law registered in the CNMV’s Special Registry of Collective Investment Scheme Management Companies (Registro Especial de Sociedades Gestoras de Instituciones de Inversión Colectiva) no. 49, and in the Commercial Registry of Madrid, under volume 36,739, sheet 52, page M-658.326, with tax identification no.: A-58.217.175. Its activity includes the representation, management, and administration of Funds and Investment Companies located in Spain and subject to Spanish law, in addition to discretionary portfolio management.
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4) The instruments included in this information are subject to the potential effects of several common causes, including:
- Market fluctuations due to unforeseen circumstances.
- Liquidity risk and other risks that alter the evolution of the investment.
5) This information contains data that reflect the past performance of the cited products. The data is a reference or record used to reach a conclusion, but is in no way an indisputable indicator of future performance.
6) This documentation may contain data based on currencies foreign to the recipient. Therefore, the possibility of an upward or downward fluctuation in the value of the currency and its effect on the results of the proposed product or instrument should be taken into account.
7) To ensure discretionary portfolio management services are provided within the scope of suitability, MIFID regulations require EDM to collect the necessary information regarding its clients’ investment goals, financial capacity and investment experience and knowledge. To that end, EDM will obtain the information needed to create an investment profile of each client, consistent with their particular circumstances. Regulation does not permit EDM to render discretionary portfolio management services without the information necessary to assess the suitability of its clients.
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