The IMF Spring Meeting confirmed that the world economy slowed down moderately in the first quarter, driven primarily by the negative growth in Europe and the anticipated slowdown in the US. Against this backdrop, the idea that the world economy, and the Spanish economy, will improve over the course of the year, is gaining more ground. Consumption data for peripheral European countries is very poor, causing core countries (Germany,France) to stagnate as well. The economy is becoming politicised due to the pressure caused by high unemployment rates. The outcome of the Italian elections foretells a political change on the horizon, likely after German elections in September.
Liquidity bolsters the equity markets as well as the credit markets, leading to a positive month. Strong cumulative results for the year might seem contradictory given the pessimism regarding the world economy, and the Spanish economy in particular, but it is not the first time this has happened. Meanwhile, the stock markets anticipate a certain amount of increased flexibility in terms of restrictive policies and welcome the initiatives of the central banks.
Our funds have performed well in this context. The main reason for this positive performance is the strength of the companies in which we invest, evident after the reporting of their profits.
With respect to fixed income, the credit markets have capitalised on the negative news regarding the world economy and have once again recorded price increases (and drops in yield). Private fixed income (credit) also performed well. In this case, the price performance was slightly lower than that of 2012 (exceptional), due to a lower average accrued interest as well as smaller contribution as a result of the improved spread.
“Sell in May and go away?”
This traditional Wall Street saying suggests that, at some point, we will see a correction in the equity markets. Long-term investments should take advantage of this and increase their exposure to equities, which we currently view as more attractive than fixed income. We believe that fixed income is overstated. We must be prepared for a change in trend in bonds, since the ridiculous yields offered leave little room for an increase (and quite a bit for a decrease). As always, we know in what direction it is heading but not when. The risk of a drop in the value of investment grade fixed income, particularly German bunds andUStreasury bonds (a safe haven recently for many conservative investors), is leading us to be very prudent regarding long terms, the most vulnerable in the event of a correction.
We continue to stand by the securities which compose our fund portfolios, whose recurring growth and sustainable profits make them more resistant and triumphant in an uncertain environment such as todays.