Being afraid is prudent, knowing how to overcome it is brave. This ensures the Spanish proverb. An aphorism that investors are facing this year, which is leaving double-digit losses in the main stock market indices and where fixed income yields are beginning to become a good option for those with a more conservative profile, once the rise in interest rates has raised the yield on sovereign debt. The fight against inflation has become the main battle for central banks and that implies lower growth and more pessimism among professional investors, as reflected in the latest Bank of America survey, where the level of liquidity has shot up to record highs .
With this panorama, some courage must be had to dare to enter through the door of equities. among 24 investment and wealth management firms, the experts recommend increasing their weight in the portfolios, with periodic contributions that allow them to take advantage of possible additional market corrections.
The cocktail of geopolitical and energy uncertainty, rate hikes and slower growth is not a very favorable scenario for risk assets in the short term, respondents explain, but the focus should be more on corporate earnings. “The consensus is still positioned for growth of 12% this year and 7.5% in 2023, and this in the current scenario of more restrictive monetary conditions, a sharp slowdown in the manufacturing sector and a more cautious consumer, they seem very optimistic estimates Perhaps we could be left with the adjustment at the level of indices caused by this reason, of downward adjustment of profits by the consensus, but with a medium and long-term perspective they can be attractive buying levels”, says Rubén de la Torre, head of sustainability at Andbank Wealth Management.
But waiting for these adjustments to take place can lead the investor to delay going public, which can be counterproductive. “Over the past seven decades, if investors missed the top 10 days of S&P500 performance, they would have sacrificed an average return of 63% per decade. Therefore, we advocate a long-term diversified investment strategy for income variable,” stresses Christian Abuide, head of asset allocation at Lombard Odier.
“European governments are willing to fiscally support the economy, with expansionary and inflationary measures, which does not allow the law of supply/demand to allow a necessary adjustment to contain prices. And as long as we do not see an inflationary spiral in wages, and we continue having negative real rates, we believe that we must maintain an agile positioning and a tactical and opportunistic attitude, always emphasizing risk management, which allows us to benefit from the increasingly common episodes of volatility”, warns Juan Pablo Calle, Miralta AM fund selector. An opinion shared by A&G Banca Privada. “We don’t know if the stock markets have already bottomed out and, therefore, this is the best time to enter equities, but we do know that valuations today are reasonable and good future returns are always achieved by investing in times of uncertainty such as the current one. Stock market history tells us that better times are coming after falls of the current magnitude, so we think that we should have exposure to equities, without buying aggressively and consuming all our risk budget, to build a portfolio that will have good prospects for the coming years”, advises Diego Fernández Elices, investment director of the entity.
Having a long-term investment horizon facilitates this construction of the equity portfolio, being selective when choosing securities. Beatriz Catalán, head of asset allocation at Ibercaja Management, points out that her strategy continues to be exposure to the dividend factor. “Quality global companies at reasonable multiples and generating a consistent dividend over time will continue to be the winning bets in the medium term in this environment of high inflation,” she says. The pharmaceutical and financial sectors, mainly insurance, are his main bets, although in his opinion, the energy sector, as soon as interest rate curves stabilize again, together with a slowdown/recession environment, “we think that investment with a more growth bias can again shine, especially the technology sector”.
with more caution
Not all respondents are so optimistic. Ion Zulueta, director of analysis at iCapital, considers that the valuations are not yet attractive enough for the investor to take the risk of going public, “especially if the investment horizon is not long-term”, while in Dunas Capital, although they recognize that there are companies that are beginning to be at “very reasonable prices”, at a general level, credit spreads have adjusted to more reasonable levels than the stock markets, especially high-yield bonds, which allow long-term returns to be obtained similar to equities, with much less risk. For this reason, for now, we prefer to allocate more risk budget to these bonds, waiting for better levels in the indices to enter equities”, they underline.
Javier Lendines, general director of Mapfre AM points out that it is better to wait. “Although the valuations of some assets are beginning to be reasonable, the lack of visibility and uncertainty invites us to be ambitious when setting purchase levels. I would maintain a lower equity exposure than my model portfolio. I would have a little Be patient and if a correction of 5%-10% were to take place in the coming weeks, I would start buying, unless there had been a substantial deterioration in the macro or the environment. I recommend staggering purchases,” he explains.
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