Friday, March 29

2022, volatile year but with good results


If there was one word that stood out in 2021, that was, without a doubt, inflation. We started the year with the central banks saying that it was not a risk, then they changed their speech claiming that the rise in prices was only the base effect, they began to consider it something temporary, transitory until, in their last speech, they assured that it was persistent . Prices that have accelerated the pace of stimulus reduction and the rise in interest rates.

A rise in prices derived from the huge injection of liquidity into the system, both through fiscal and monetary policies. Furthermore, it says Sébastien Galy, Senior Macro Strategist at Nordea AM, “there has been a very strong economic rebound and at a speed not seen before, which has generated some problems in the supply chains in countries like China and Vietnam, generating shocks in manufacturing. The Central Banks are changing their policy to buy time and to normalize the inventories of products such as microchips and shipping transport”. This expert speaks of the importance of Central Banks “not losing control of their narrative, since that would be a great risk and would lead to a serious problem of credibility, leading to important consequences for the markets, with high valuations supported for now due to strong liquidity.

In this sense, Nadège Dufossé, Head of multi-asset in CANDRIAM, believes that “we will have to wait and see the actions of the Central Banks, which should be different from the policies applied after the financial crisis of 2008. We expect two interest rate hikes in the US in 2022 and we do not expect a curve of inverted types. If it were to happen, it would be bad news and it would mean a stagflation scenario in which the Central Banks are behind the market and it would precipitate the end of the cycle. It is not our scenario, but it would be a risk for the market in 2022, being negative for assets at risk”. Felipe Villaroel, partner at TwentyFour Asset Management and manager of the Strategic Income Fund at Vontobel AM, believes that stagflation is not a real risk. “Although we clearly have inflation, in terms of growth, in fact, the developed markets are going to grow at rates that are considerably higher than the potential. This is important to keep in mind, especially when looking at risky products like spreads, Bunds and the US Treasury curve, as well as the G7 currencies, with a very, very flat curve.”

And it is that in case things get complicated by the new strains, the key, speaking of markets, will be in the benefits, in “the capacity of the “earnings delivery” companies in uncertain environments. We have moved through periods in which different styles have been working, growth, value, etc., with even weekly rotations. Clearly the markets are at levels where there is a greater risk of falling in the face of something unexpected. Therefore, the more uncertainty there is, the rotation will be towards those companies or industries that are more resilient, with greater visibility”, he acknowledges. Ben Ritchie, head of European equities en ABRDN.

All in all, what is the recommendation for 2022? Matthieu Barrière, fund manager ODDO BHF Patrimoine, He assures that in this environment, fixed income continues to be an important part for institutional investors, although “it is difficult for retail investors to invest in the asset due to low interest rates. It would be necessary to have interest rates of at least 1% in nominal terms, which would not be enough to cover inflation”. This expert admits that in a 2022 monetary policy change, one must be prepared for increased volatility. “The real risk is not being invested in real assets and, therefore, not being properly diversified.”

Without leaving fixed income, Villaroel assures that “we started 2022 with spread levels that are not bad compared to recent years. In HY we will be close to 400bp, in emerging markets there is quite a spread despite having had a very bad year in almost all classes. In 2022 there will be a lot of volatility and it will have a lot to do with monetary policy, but finally the growth and profits of companies and macro indicators will be positive, although possibly lower than 2021 given the strong rebound that there was. In this sense, positioning in fixed income, with a curve moving upwards, is with a medium-term vision, with equal end-to-end spreads and also low default rates, having a strategy fixed on income is the best option and not do market timing”.

George Saffaye, Managing Director, Global Investment Strategist de BNY MELLON, talks about investment in alternative assets “is very suitable as a way to diversify. We have been in a bull market, in general, but in a scenario of rising rates, it is necessary to seek coverage and adequate diversification, whether it is a 2%, 5% or 10% allocation. Variable income linked to real assets, including basic natural resources, can be included. Regarding valuation, the manager emphasizes that cheap is not necessarily good. There may be disruptive companies in the world of digitization and technology that trade at high multiples, but if growth is strong, they should not be ruled out. “You have to bet on the companies that are transforming the world, such as digitization, technology, energy transition… where there are many startups that are candidates to invest.”

In this sense, the ABRDN expert believes that attention should be focused on cash generation, the increase in dividends and real benefits, as opposed to growth in sales or valuations. “It is not a one-time issue for 2022, but Europe will surely do relatively better in the next 5 to 10 years. In addition, it should be considered that it is highly leveraged in emerging markets, that if its industrial production and consumption do well, Europe will do well too”. Europe is more exposed to income from abroad (around 50-60% while in the US it is around 20%). The Nordea AM expert believes that we are at a time when, if the right bet is made, the results will be the best. “We remain positive for equities, innovation and disruption as well as emerging middle classes in Asia. It is likely to see a rally, then a normalization and reallocation opportunities due to dispersions”.

From Candriam they believe that“Under a constructive scenario in the economic recovery, our allocation continues to be positive in equities, although with lower profitability expectations, neutral in credit, short durations in fixed income, positive in alternative assets. In terms of regions, and being very flexible, we are neutral on North American equities (by valuation) and we prefer European and Chinese equities, due to a cyclical recovery”.

Risks and opportunities in 2022. What do investment managers think?

Diego Fernández Elices, General Director of Investments of A&G: “Equities continue to be one of the few alternatives to build portfolios for next year, but the problem is what we do with the other part of the portfolio. Possibly the alternatives should have a relevant weight in the portfolio, with care because it seems that the financial repression continues and the risk of entering an illiquidity trap is increasing.

Luis buceta, Director of Investments of Creand WM: ”We are in an environment similar to that of the second half of 2018 in which there is talk of whether to raise rates or not and, although the Central Banks have learned a lot, a longer-than-expected scenario in terms of inflation can generate a lot of nervousness and a liquidity contraction effect. 15-20% of the portfolio has to be prepared for a scenario in which inflation continues to be higher and, above all, not overpaying for assets”.

Ismael Garcia Puente, Investment Manager at Mapfre Asset Management: “We are concerned about the issue of portfolio construction. We find the divergence between sectors that do well one day and poorly the next day worrying because it makes portfolio management very difficult. We look very closely at two fundamental factors to see how inflation ends: the labor market, attentive to the issue of salary; and business margins, which are quite cyclical, are at their highest and we are concerned that these may be eroded due to the cycle and also due to inflation”.

Miguel Uceda, Director of Investments at Welzia Management: “There is a scenario of rising real rates that can cause bonds, gold, stock markets to fall by valuation… a scenario of recovery of real rates that could be very harmful for any type of mixed portfolio because there would be nowhere to hold on”.

Ana Fernández Sánchez de la Morena, Managing Partner at AFS Finance Advisor: “I always have raw materials as a diversifying element and gold is beginning to be old fashion when compared to virtual currencies. We must take advantage of technology, look at the digital age and try to include alternatives to fixed income, in equities and gold, and perhaps look at investments in baskets of some cryptocurrencies because we cannot be left behind but above all a lot of diversification by strategies, themes and regions, especially with the ESG seal”.

Mar Barrero, Director of Analysis at Arquia Profim Banca Privada: “The main change that we will see this year will be in the policies of the central banks that until now have supported the markets and the solution lies in a great diversification in terms of assets. The part that we have to allocate to more conservative products is very important and is becoming more and more complex. We rely on very flexible managers, who have the possibility of covering the duration”.

Pablo Monjardín, Head of Asset Management at ABANCA: “If we think of the most conservative investors, 2022 looks quite challenging. There, the strategy is to seek diversification at a global level, avoid risks such as the duration that is not well rewarded and go for both liquid and illiquid alternatives and neither excessively overweight equities but clearly as a driver of profitability.

David Tomás Navarro, Portfolio Manager of Andbank Wealth Management SGIIC: “That growth comes from the developed world is inflationary, we have the breeding ground to say that it is the year of Europe or banking. In fixed income it is difficult to see returns, this year will be a complicated year in which equity is like the one-eyed man in the world of the blind”.

Daniel Olea Sandonís, Directors of Investments of EBN Banco: “Within fixed income there are many sub-assets, such as high yield at 3% because it is conservative in Europe and, if it does not increase the risk of default, you have a coupon that if rates do not rise, it may be worth it for a moderate investor. It seems early but perhaps the market will give an opportunity to invest in emerging corporate bonds issued in hard currency”.

Silvia García-Castaño, Investment Director of Tressis: “We have duration because we see it as a protection element. Within fixed income we prefer credit to governments and we are still cautious with high yield because, although we have high credit spreads, we see some problems that can still lead to a little more volatility and spread widening in the high yield part” .

Daniel Sancho, Head of Investments at Mapfre Asset Management: The strongest risk that we see and that we believe could be one of the triggers for a correction is that central banks change their discourse. We are all aware that the Central Banks are behind the curve and that they are acting in a very conservative way. Our portfolios are positioned for that surprise. In Variable Income we are going towards active management, global management, we are not biased towards anything”.

Alejandro García Llorente Fund Selector at Welzia Managment: “With the rate hike closer, it makes sense to think that strong and sector rotations will be more frequent and longer. The field of equities will be more complicated, we will have to be more accurate in timing, more in stock picking and, by sector, there are segments that have suffered with the discount in interest rates but there are others that have not seen it and eventually have to His time will come.”



www.estrategiasdeinversion.com