Stock picking market
What is important for fund investors
1. No imminent crash
The strong recovery of stock prices in the first quarter has returned U.S. markets to all-time highs. This, however, does not apply to all sectors of the stock market, especially not in Europe.
2. Focus on LONG stocks
Consequently, individual securities with a focus on Europe are offering significant potential for recovery. No other investment region is currently as unpopular with global investors as Europe.
Our fund has gradually reduced the hedging and decreased cash to under 10%. As a result, the share of LONG stock investments is at over 90% of the fund volume.
Stocks from building material suppliers, manufacture, and technology have been added to the portfolio. With a positive development but also more potential for recovery, building materials supplier Geberit from Switzerland is currently our biggest fund position.
In the technology sector we have not bought semiconductor stocks—price increases have not been substantiated by corresponding, positive industry news. We do not believe that the strong upward trend of the Philadelphia Semiconductor Index in the first quarter will continue, and therefore we stay away.
Technology stocks from the areas of software and data management as well as suppliers for robot manufacturers and the automotive industry appear more attractive at this point than the semiconductor industry. The same applies, as mentioned earlier, to European manufacturing stocks whose prices have already slightly recovered but still hold significant potential for further recovery.
3. Still no small caps
In addition, we have still not made any significant investments in small caps but rather continue with mid and large cap investments. Should we identify a need for hedging, nearly all stocks can be hedged with single stock futures. Cash is currently held in Swiss Francs in net terms.
4. Global policy risks on the back burner—interest stays low
After the first quarter, big topics such as the trade war between the U.S. and China as well as Brexit continue, with key players stalling for time and no majority for a radical solution. In addition, the U.S. Federal Reserve has been consistently creating the impression that it will remain passive in the future, similar to what has been the case with Europe’s Central Banks for years and even longer in Japan.
5. Investment crisis Q2/2019
The investment crisis for investors worldwide has almost been forgotten in light of the temporarily rising interest at the end of 2018 and is back on the table in the second quarter of 2019.
In addition, FOMO (fear of missing out) is driving prices. The fact that many market participants continue to be invested in stocks below average and their investment quota is still impacted by the negative development in the fourth quarter of 2018 seems to indicate an at least short-term stability over the summer. A crisis similar to the one at the end of 2018 is probably not yet to be expected at this time.
6. Risks are being put off, not eliminated
Whether or not the wait-and-see position in politics and with investors will be similar in the fall remains to be seen. January 2019 has been the best at the stock markets since 1987—what happened subsequently in October 1987 is well known. This situation does not necessarily have to repeat itself, but it can’t be ruled out that it will.
For the moment, stock picking is the best approach, and this may be the case for longer than many may anticipate.
