Direction still not determined in August

I. What is important for fund investors

  • The development of the fund price in 2018 continues to disappoint, especially when compared to previous years.
  • Since the last week of July, in which we intensely adjusted the portfolio, the fund has been developing better than the DAX. But still, the DAX and the fund price continue to fall.

  • Based on our previous assessment—which we still stand by at this time—we expect our selected industries to rise in net terms. This is no longer true for the European and American technology stocks that we have previously favored (focus on suppliers of semiconductor). In this sector, prospects have darkened significantly—not least due to the behavior of the chip manufacturers (see „On Stocks“ article „Shaky September“). As a result, we have sold all stocks from this sector with the exception of remaining stocks from the semiconductor supplier and robot manufacturer Teradyne. This area has significantly contributed to the underperformance of the fund. It would have certainly been better to withdraw earlier.

  • Regardless of this situation we have been parting from all small and micro-cap stocks for the most part in the past months, as these can‘t be reasonable hedged in a crisis. The fund is clearly focused on large caps with focus quality. The average market cap of the 30 stocks is at over 8 billion euro.
  • We expect the stock market climate to lighten up considerably in Q4. The midterm elections in the U.S. might motivate Donald Trump to significantly change his strategy so that the currently very negative impact of the various trade conflicts won’t affect the GOP‘s electoral prospects unduly. We believe that in Q4/2018 this will make up at least partially for the underperformance.
  • Short-term—in September—however we expect prices to still fall or go sideways. As a result, we have hedged the portfolio—differently from our positioning in August—quite significantly through futures.
  • Should the stock exchange continue to fall, we are well prepared to cushion this through additional hedging. However, we are not ready to part from all stocks, as the final rise of this stock market cycle probably still lies ahead.
  • Unfortunately, the fluctuations increase significantly toward the end of the cycle. We are trying to counter this development by using not only index futures but increasingly also single stock futures (SSFs) traded at the Eurex. These are futures that do not relate to indexes but to individual stocks. This enables a very tailored hedging, reducing the risk of high losses arising from hedging in rising markets. Holding mostly highly capitalized or very highly capitalized stocks in the fund enables us to use SSFs with almost all stocks.

II. Outlook

For our assessment of the outlook, please read the article „Shaky September“ in our section „On Stocks.“

Georg Oehm

Entrepreneur with a faible for braces & shorts (as clothes and investments) who believes in personal development of people & proper and hard work to solve problems & organise projects. Focus on negotiations and investing – always with the end in mind.

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