Newsflash on interest rates

To compensate for the growing inaccuracy of the Julian calendar, which had governed Western society since Julius Caesar, Pope Gregory XIII decreed in 1582 that 4 October would be followed by 15 October that year.  The pontiff’s decision sparked a revolt among the servants, who demanded payment of their wages for the whole month, which the masters refused.

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Constructive engagement with listed smaller companies: A ‘Value’ alternative to Private Equity?

Minority Investing

Two years ago, Philip Best and Marc Saint John Webb illustrated their investment approach to minority investing by reference to the theme of how ‘constructive engagement’ with smaller listed companies could accelerate returns and reduce risk. This approach to investing in ‘small caps’ was compared to Private Equity minority investing in ‘midmarket’ companies.

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Navigating the divergence: a reflection on the striking dynamics of small/micro-cap investments

The year 2023 saw significant stock market gains worldwide, but for anyone investing in European Small/Micro-cap, an invitation to the party was notably absent. Why bother trying to identify winners from thousands of small-cap stocks when you can simply invest in a few of the largest, best-known companies globally and achieve better returns?

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The small caps bet

First of all, over 30 years, investing in small caps remains one of the best strategic bets in the global equity market (see chart below).

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Is geopolitical risk a market risk?

Reminder of portfolio management strategies

We have already written a great deal about central banks, and we will return to the subject again in this monthly report. On the subject of monetary policy, the borderline between forward-looking analysis and repetitive rhetoric has now been reached. The Swiss National Bank’s (SNB) surprise start to the cycle of key rate cuts does not revisit the subject (the SNB’s decision is also motivated by a problem of overvaluation of the Swiss franc), or even the fashionable thesis that the ECB could finally cut rates before the FED. The duration of a longer-than-expected pause, which has been our scenario since last year, has now been taken on board by the markets. Additional volatility would come from an acceleration in the timing and pace of the downturn. With this in mind, we are comfortable with our ‘cruising’ duration of 4.

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Newsflash on interest rates

The High Yield market has been in turmoil recently and many names continue to be under pressure: Altice, Atos, Grifols, Ardagh and Intrum to name but a few. The latest primary issues are marking time: Pro Group and CBR Fashion, in particular. Only FNAC is doing well.

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Where are US and European long-term yields heading?

US long-term yields (T-Note 10Y) have risen by 70bp since the start of the year (including 35bp in the last month), mainly as a result of downward revisions to expectations of future Fed rate cuts. At the start of the year, futures were forecasting more than 6 Fed funds rate cuts by 2024. We are now down to 2, which seems about right. In this sense, the upward movement seen in recent months corresponds to a form of normalisation from excessively low levels at the end of autumn 2023.

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5 questions to a fund manager – Xavier Nicolas

After 30 years of falling rates and 2 years of rising rates, what is the state of the bond market today?

Despite a number of disruptive events – the fall of the Berlin Wall, the 1994 bond crash, the Gulf War, the bursting of the dotcom bubble and the collapse of Lehman Brothers – long yields fell almost uninterrupted for more than 30 years between 1990 and 2020, before rising sharply between 2021 and 2023, wiping out almost 10 years of performance. Over these years, the market has undergone a profound transformation, helped by the growing indebtedness of governments. The scope of available instruments has widened. Limited to government debt in 1990, bank, corporate and private debt have since been added to the pool. The instruments have also become more sophisticated, with the arrival and growing importance of futures markets, structured products and, finally, synthetic products, fuelling an increasingly flourishing industry. Hedge funds, thematic funds, index funds, ETFs, total return funds, dated funds – each year brought its cohort of increasingly innovative products.

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Five questions to a portfolio manager – Rupert Kimber

1. The market has performed well for the past 3 years. Given that there have been many false starts for Japan over the last 30 years, what makes this time different?

Corporate governance/changes in the corporate landscape/ shareholder activism are three factors, now well established, that should contribute to a fundamental change in market dynamics.

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