Investing for tomorrow

After a bruising first 10 months in 2022 that saw fixed income investors suffering near-record losses in most asset classes, November offered the first true relief of the year.

In 2022, the markets repriced risk premiums in financial assets, quickly adjusting to the inflation risk and to the interest rate hikes implemented by central banks that followed.

We end 2022 with a preference for equities over bonds, as our investment strategy became more constructive on attractive price levels at the start of the fourth quarter.

After a slightly hesitant start, European stock markets continued their recovery from the October lows and ended November well into the green.

The macro environment in 2023 is likely to remain challenging for emerging market debt, especially in the first half of the year.

Sustainable Finance Disclosures Regulation (SFDR), mandatory ESG disclosure obligations, was introduced by the European Union to improve transparency in the market for sustainable investment.

Grey swan is an event that is possible and known, potentially extremely significant but considered not very likely to happen.

October offered a mixed picture following a bruising first three quarters. The Bloomberg Global Aggregate Index was down 0.55%, driven primarily by losses in US Treasuries. However, investors in some segments of the credit markets, especially EUR HY, USD HY and to a lesser extent EUR IG did see positive performance. Most Inflation-Linked Bonds markets with the exception of the US also rallied on persistently high inflation.

Although the economy continues to decelerate, equities staged a strong rebound during the month of October.

In October, we turned more constructive based on our analysis of the market configuration. This month, fundamental support provides further reasons to maintain this stance.

European equities have rebounded over the past four weeks. The rebound was mainly driven by value stocks that have outperformed growth stocks since the last Equity Committee.

If the smile measures how the portfolio value reacts to changes in the underlying markets, then maybe we should measure the smiles – and this is what our investment team has been doing.