Investment

Chart of the Month – 2019: Everything was positive! 2020: Be selective!

by Angel Sanz

2019: Everything was positive! 2020: Be selective!

Source: Bloomberg

One year ago, we stated the following conclusion when we summarized 2018:

“2018 was the “annus horribilis” of the capital markets with no place to hide to make money. 2019 has started with attractive valuations and some challenges (US-China trade war, Brexit, Central banks tightening). If history is any guide, we may say that after such a bad year, the market delivers good returns the following one. Our view is that we are facing a slowdown in the economy, but markets are incorporating prices that reflect a dramatic slowdown close to a recession.”

… and “voilà”, we have had an extraordinary year in all asset classes in 2019, for 3 main reasons:

  1. Many central banks across the world cut rates, injecting liquidity to the capital markets.
  2. The fears to a recession were dissipated and world economies experienced just a slowdown.
  3. US-China trade war already is part of our daily life, and a truce was agreed by the year-end.

EQUITIES

Once again, the US was the leading the market (+31.5%) with the strength of its good information technology companies. Although profits did not grow during 2019, valuations were very attractive at the beginning of the year. The same can be said for the other equity markets.

FIXED INCOME

The planets were aligned for the fixed income market: (1) Central banks cut rates, so Government bonds performed well; (2) the world economy slowed down, but continued with some growth so, corporate spreads compressed during the year in all asset classes; and (3) US-China trade war confrontation decreased and helped emerging markets. In this situation, many fixed-income assets achieved double digit returns in USD.

COMMODITIES

Gold had a remarkable 18.8% performance during the year (is it a safe haven when it appreciated with the rest of the asset classes?) following the more dovish monetary policy of central banks.
Oil had a good performance (Brent went up 24.9%) due to the reasonable oil demand in the world and the controlled supply by the main producers.

ALTERNATIVE INVESTMENTS

Final December performance for hedge funds are not yet available but many hedge funds sub-strategies had double digit returns, especially the equity hedge funds which may have been reached 14% performance for the year.
Private Equity, Private Lending and Real Estate funds had also a good year with massive inflows to these asset classes chasing some yield out of the low yielding returns of fixed-income securities.

CONCLUSION

Will the market mean revert again? After such an excellent 2019, investors may be tempted to believe that 2020 might give up some of these returns. Our “20/20” view is that we must be more selective during 2020, with a moderate positive view:

  • Can we still call the European High Yield market high yield when YTM is only 2.6%? or, is it a low yield market?
  • Investment grade bonds in EUR and CHF are mostly given 0% yield.
  • In the equity market, if profits increase by 5% and dividend yields are at 2%, investors may expect around 7% return for the year.
  • With valuations more demanding, it is key the selection of good managers both on the long-only side and on the hedge fund side. Active management will matter in 2020!

Be careful with the so popular illiquid strategies: Too much money chasing limited opportunities.

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Antonio Mira
CHIEF FINANCIAL OFFICER, MEMBER OF THE EXECUTIVE COMMITTEE

Antonio Mira joined NS Partners in 2006 as Group Chief Financial Officer. He heads the corporate functions and is involved in coordinating and implementing the decisions of the Executive Committee.
An experienced bank auditor, Antonio started his career in 1995 with Arthur Andersen, where he worked for some 7 years before joining Ernst & Young in 2002 as a Senior Manager.
Antonio is a Swiss chartered accountant and a Business graduate of Lausanne University (HEC).

Sébastien Poiret
DEPUTY HEAD OF WEALTH MANAGEMENT

Sébastien Poiret joined NS Partners in 2008 and manages funds of hedge funds and private client mandates. He also oversees the development of the Group’s offices in Mauritius.

Prior to joining NS Partners, he served as a Trader, Head of Manager research and Portfolio Manager in the USA and Switzerland for a single hedge fund (1998-2004) and for Optimal (2004-2008), Grupo Santander’s fund-of-hedge funds operations.

Sébastien holds a Bachelor’s degree in Corporate Finance from the ESPEME Business School (EDHEC Group) and an MBA in Finance and Economics from the Institute of Business Administration, both in Nice.

Abir Oreibi
BOARD DIRECTOR

Abir Oreibi joined the Board of the NS Partners Group in 2018, where she brings her truly international perspective and rich experience.
Among many other ventures, Abir set up Alibaba.com’s first European office. After living and working in Shanghai, Hong Kong, Bangkok and London, she now lives in Geneva, where she is CEO of Lift Events, an organization that identifies technology trends, their business and social impact through the organization of events and open innovation programs. Issues related to the challenges and opportunities created by new technologies as well as the strategic responses from organizations are at the heart of Lift’s activities.
Abir holds a BA in Political Sciences from the University of Geneva. She is an investor, and member of advisory and innovation boards.

Romain Pidoux, CAIA

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Romain Pidoux joined NS Partners in 2011 and heads the Group’s Risk Management.
He started his financial career in 2005 as Head of Quantitative Analysis for a Swiss Family Office, selecting funds and managing portfolio allocation. In 2008, he switched to the alternative world and joined Peak Partners as hedge funds analyst.
He is a Chartered Alternative Investment Analyst (CAIA) and holds a Master’s degree in international relations from the Graduate Institute of International Studies at Geneva University.

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