Post-European, Stocks under stress. Bonds, shares and… Here’s where to invest your savings. Analyses
Politics and economics, as we know, go hand in hand. And this is why the European elections have definitely had a high impact on the continent’s markets and stock exchanges, without forgetting the ECB, which has advanced with extreme caution a second rate cut after that of 0.25% in June.
As reported Milan Finance, in the week following the voting, the Ftse Mib index lost 5.8%second worst stock market after Cac 40 of Paris (-6.2%), in Germany the Dax lost 3% and the Ibex 35 in Spain 3.6%. The common currency is also under stress, returning to 1.069 on Friday, within 48 hours, from 1.084. Even the European debt market it danced quite a bit, between waves of sales and purchases, the latter materializing on Friday 14 June, when the markets began to massively sell shares to seek refuge in bonds. The French ten-year bond Oat went from 3.1% to 3.13% with a mid-week peak at 3.28%, while the BTP started from 4.02% to arrive, with various shocks, at 3.93%. Investors once again took refuge in the German Bund, whose yield fell from 2.62% on Monday (the day after the elections) to 2.36% on Friday.
The question arises spontaneously, even among ordinary citizens, on how to build a euro-stress portfolio now, while waiting for the French elections on June 30th and in view of a hot summer on the stock exchanges the likes of which we haven’t seen for a couple of years.
Euro-stress portfolio after the elections, here’s how to do it
The election cycle has caused a certain volatility, especially on stocks with “greater exposure to the French market”, they comment on Milan Finance from Algebris Investments. Even though “in the Cac 40 list, France only represents around 15% of revenues”. But there are also other possible implications of the vote at the stock sector level. For example, on utilities, “in light of the political uncertainties on wind and solar”, and on the construction sector due to “potential reductions in incentives for energy restructuring and renewal”.
Euro-stress portfolio after the elections, bonds
On the bond side, however, Algebris experts see “credit spread at lowest since 2021despite much higher rates and rising maturities over the next two years: credit therefore remains in a vulnerable position, with a very euphoric market positioning.” In a multi-asset portfolio the management house proposes a 60% allocation to bonds, seeking value “in financial credit on junior issues and high yield securities in defensive sectors such as healthcare, telecommunications and utilities”. The remaining 40% could be allocated to stocks, especially mid and small cap stocks“financial stocks with a focus on countries such as Italy and Spain, and large European capitalization stocks “with significant international export activity”.
Euro-stress portfolio, shares
And speaking of stocks Giacomo Calef indicates for a balanced portfolio, shares (50%), investment grade bonds (35%), gold (5%) and hedge funds (10%). A balanced portfolio with a 50% equity predominance offers growth potential, while 35% investment grade bonds provide stability and income. Allocating 5% to gold acts as a safe haven and therefore offers a hedge against inflation and market volatility”. The hedge funds, with 10%, finally, “add diversification and alternative strategies that can improve the overall risk-return profile of the portfolio”. The expert prefers investment grade (IG) corporate bonds with maturities of 1-5 years and an average yield of 3.8%. He avoids investing in the high yield segment because the “spreads (the differential with the safer investment grade bonds, ed) have compressed to low levels when compared to historical data and no longer offer an adequate risk premium. This is why we believe it is time to take profits from high yield.” Investment grade corporate bonds with short maturities instead offer “a good balance between risk and return, especially with yields around 3.8%, which are interesting in a context of relatively low interest rates. Focusing on securities with short maturities also reduces interest rate risk.”
In this phase the market, underlines the portfolio manager of Symphonia sgr Marco Midulla, “is experiencing extremes, with investors having great difficulty in having a univocal vision in the rotations between sectors and asset classes”. At the equity level, which according to the manager should constitute 30% of the portfolio, at least until the elections in France it will be possible to continue “the rotation in more defensive sectorsespecially in light of the valuations of some of the cyclicals”.
In bonds, however, Midulla prefers a so-called approach barbell (the one that favors the extreme parts of the investable spectrum), considering that “spreads have reached levels that are too narrow compared to the macro context”. On credit, the manager prefers exposures with a duration of less than three years, especially on “BBB ratingidiosyncratic high yield stories and bank At1s with short calls”. While in government the expert prefers to expose himself “to the medium-long part of the curve, with duration 7-10 years», also given that returns «can remain in the trading ranges currently tight, for fear of economic slowdown, widening of peripheral spreads and inflation”,
Euro-stress portfolio after the elections, funds put to the test
This new stressful situation will also represent a significant test for funds that invest in European stocks and bonds. Since the beginning of the year there have been equity funds that have achieved a return of almost 16%: such as the Discovery Europe ex-UK by Mirabaud Am: a sub-fund made up of European mid and small caps which, compared to its reference index, is heavily overweighted on technology and consumption and underweighted on the banking sector. Among the top 10 holdings as of May 31st was the name of Sol, a company from Brianza, specialized in the production of industrial gas for medical use.
Always as reported Milan Finance, the case of the Bgf Continental European Flexible Fund is also interesting BlackRock (+14.1% since January): a fund in which the industrial and consumer sectors are overweighted by 5.77 and 7.48% compared to the benchmark and which includes heavyweights among its top holdings (again as of May 31st) of the caliber of Novo Nordisk, Asml, Linde and Lvmh.
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