Stock markets in the decision-making phase

I. What is important for fund investors

• The first half year of 2018 was characterized by a back-and-forth. Bull market in January, the blues in the spring, no decision on the further direction so far.
• The fund is placed in a waiting position. Around two thirds are invested in stock, the rest comprises cash or hedged stocks.

• Mellinckrodt suffered losses in the first half year of 2018. Nonetheless, in a three-year comparison the fund has remained in the range of returns we aimed for, on the level of the indexes DAX and Stoxx Europe 600 at a significantly lower risk (volatility).
• The portfolio has been aligned with investment topics that are promising in the late phase of the economic cycle: energy & commodities as well as consumption. With the area of value tech showing a good risk/reward ratio after some stark decline in prices in the past months, the fund is invested in this area as well.

• With concentrated investing, the fund portfolio held 27 stocks at the half-year mark. The hedging has been further diversified and now includes a combination of various index futures with options for individual stocks. The net stock ratio was at 60% at the end of June, similar to the phases of uncertainty before Brexit and before the U.S. presidential election. Unfortunately, the price development of the past months is as unpleasant as it was before said events.

Outlook

• Especially during short-term increases of the market-weighted indexes, our positioning, which is defensive by comparison, led to an underperformance of the fund compared to these indexes. In light of the big uncertainty about the further development of the market, we believe that the current “waiting position” is advisable, as it accommodates our goal of long-term capital preservation in a special way. This also shows in our continued intense investment in mid and large caps, enabling us to react flexibly.
• As soon as the markets decide on a direction, we will adjust our positioning accordingly. Regardless, we expect the fund price to rise even with a continued lateral development, as we anticipate a good price development for the industries and topics we have selected in the second half of the year—regardless of the general stock market.
• It is also important to distinguish between industries that typically show a good development in the late phase of an economic upswing and the question, whether it is “so late” in the cycle that it will soon end. The period in which late-cycle segments of the economy do well can continue for a long time—even for years. It can’t be determined today when the current cycle will end, and for different reasons we believe that this economic cycle will last longer than most expect. As a result, the chances for prices in the future are accordingly high—don’t miss out on them with overcautious positioning!