Due to possible turbulences keep your seat belt fastened!
1. What is important for fund investors
- The portfolio continues to be hedged. The net stock quota was at 0% in late October. Capital preservation trumps and is more important than “buy the dip.”
- The stocks are hedged. But the capital is invested over various currencies. As of late October, 61% of the fund were invested in the Euro region. Currently, the quota of euro investments is only at 46%, Swiss investments at 28% and US dollars at 26%. The UK investments in our portfolio are fully hedged. Accordingly, the quote of investments in GBP is currently at 0%.
- We are closely watching the impact of Brexit. We intend to seize any opportunities that may present themselves. However, it’s still clearly too soon for this.
- The general risk tendency can be measured not only in volatility; the US dollar is also a great indicator of the situation. When the situation becomes more critical, the dollar goes up—when the situation eases, the euro goes up.
- The midterm elections resulted in a brief and intense bear market rally. But the correction wasn’t long in the coming. The market continues to be stuck in a lateral position—the medium-term decision, whether it will go downward a bit or significantly more is still open.
DAX 11,200 can probably be categorized as a short-term goal in this context. - We will not attempt to follow each upward trend of the market. Capital preservation is a priority. Whether or not the G-20 summit in Argentina will usher in the big year-end rally that everyone is hungering for—we shall see. The APEC summit in Papua New Guinea didn’t really lay the ground for it. It could barely be any harsher than it was between Xi and Pence in Port Moresby.
- Our focus is clearly on wait-and-see. Our primary goal as stock fund is to continue to keep the price consistent despite all turbulences.
- We are watching the market to selectively take advantage of lateral movements. But only with a limited risk.
2. New clouds on the bond market
- The stock markets have had us preoccupied for several months now with bad performance, outlooks that are adjusted downward, and with falling valuations. What, by the way, is the bond market doing? Unfortunately nothing convincing, really.
- The U.S. industry icon General Electric (GE) just switched out its CEO once again. The new guy is supposed to fix it but has been standing out with stalling tactics. While initially the talk was about a cash position (over $20 billion), now the debt is gaining the center stage (over $100 billion).
- Baker Hughes, the recently acquired oil services company, is now in Lawrence Culp’s ”clearance sale” with the motto “everything must go.” You can easily tell how investors feel about this. Barker Hughes is still listed separately—and the price is falling.
- Worse for GE: the prices for the bonds are falling, too. It has been a long, long time since GE received the highly esteemed AAA rating. The bonds are now just short of clearance.
- The entire market for bonds from U.S. companies (U.S. corporate) has gained center stage through GE. Returns are rising, the prices of bonds are falling accordingly. That doesn’t necessarily result in a total crash as some who are looking for headlines are now writing. But one thing is clear: That is not the stuff that dreams are made of.
