Flash G Fund World Vision(R)

31/03/2020

ROAD-ITALIA-shutterstock_116603593©Igor-Plotnikov-900×480

CORONAVIRUS : positioning of our G Fund World Vision(R)

KEY POINTS

  • G Fund World Vision(R) invests in the main global equity markets, and its investment philosophy is based on an active management with a strong focus on fundamental analysis.
  • Rigorous risk control is implemented at each stage of the investment process
  • The spread of the coronavirus continues to strongly weight on risky assets, and the pandemic has now prompted us to anticipate that the recession we were not expecting until 2021 will actually occur this year.
  • At this stage, we still maintain the scenario of a global but transitory exogenous shock, of a duration and amplitude that remains to be determined.
  • In our G Fund World Vision(R) fund, we have decreased the most immediate risk and the business models that will be most affected over the long term without any hope for a quick recovery.
  • While preserving the same risk envelope, we have decided to strengthen our positions, especially our long term convictions.
  • We intend to remain selective and to reduce / remove the business models that are potentially damaged for the long term and to reinforce / buy stocks in companies with long-term growth prospects and / or certain high-quality cyclical stocks.

 

INVESTMENT PROCESS 

G Fund World Vision(R) invests in the main global stock markets, without any constraints when it comes to the size of capitalization or style. The investment universe is deliberately wide, to provide a pool of both big cap and mid cap stocks listed on the developed markets, represented by the MSCI World Index (North America, Europe, developed Asia Pacific, i.e. Japan, Australia, Hong Kong, New Zealand and Singapore).

The G Fund World Vision(R) investment philosophy is based on an active management sustained by fundamental analysis.  Its key pillars are:

  • Stock-picking, as the main driver of performance, in particular via numerous meetings with American and European companies
  • Steering of allocation per sector and per geographical location in combination with beta management, by means of a cohesive market overview expressed in a global scenario
  • Rigorous risk control at each stage of the investment process.

Portfolio construction is based on a combined “top-down” and “bottom-up” approach. The target geographical allocation is determined on the basis of our market scenario. Each security in the portfolio is weighted according to the different risk characteristics.

 

PERFORMANCE

 While 2019 was euphoric and market by strong upward trends, 2020, which we expected to be calmer due to a decrease in tensions between China and the United States, is now highly volatile due to the spread of the coronavirus epidemic from China to every part of the world. National economies have progressively stopped, triggering strong announcements by governments and central banks.

Today, the spread of the coronavirus continues to cause risky assets to plummet, and the pandemic has now prompted us to advance to this year the recession that we were not expecting until 2021 and to consider the recession as global.

The Chinese economy contracted in the first quarter of 2020, and the developed countries will be in recession in the second and third quarters of this year. The quarantine measures will have a very considerable impact, not only on business (both industrial and service companies) but also on households. For that reason, we expect that the economic data in spring will confirm this global recession.

Nevertheless, once the pandemic has been stabilized, three factors will contribute to a significant relaunch of activity: first, there will be a need to “make up for lost ground”; second, the oil importing countries will benefit from a “historic oil glut”, and, finally, this relaunch will be supported by the specifically targeted economic and monetary policies.

At this stage, we still maintain the scenario of a global but transitory exogenous shock, of a duration and amplitude that remains to be determined. The performance paths are likely to be less smooth, with a resurgence of volatility. In general, for now, we prefer to limit the relative risks of our portfolios, and we remain attentive for any signals that could potentially lead to a change of paradigm.

Overall, in our equity portfolios, we are maintaining our positioning and our growth/quality bias. Today, we are beginning to witness phenomena of excessive falls in market prices. While preserving the same risk envelope, we have decided to strengthen our positions, especially on certain of our long convictions. Following the OPEC meeting, we decided to sell certain oil services in order to fund these purchases.

Since the beginning of the year, as of March 24th 2020, G Fund World Vision(R) showed a net performance of -21.95%, compared to -22.90% for its benchmark index. The relative outperformance of our fund since the beginning of the year is essentially due to our qualitative positioning and to our cash pocket. In addition, our under-exposure to the financial sector has proved positive, as has our stock-picking in the real estate and consumer discretionary sectors.

G Fund World (R) IC C

Past performance is not a reliable indicator of future performance

 

In our G Fund World Vision(R) fund, we have decreased the most immediate risk and the business models that will be most affected over the long term without any prospect for rapidly recovering the opportunity cost resulting from the current crisis, i.e.:

  • Airline companies:  sale of United Airlines, badly hit, like the other airline companies, by the collapse of air traffic.
  • Oil services: very low initial positions in this sector. Helmerich & Payne (equipment supplier) and Halliburton (service provider) were sold, and the capital was redeployed to Chevron, an integrated energy company, including production, distribution and chemicals, as a more defensive investment.
  • The sale of United Airlines stock was redeployed to Microsoft and Amazon, which are well-positioned via their business model in the context of the pandemic, and to Nextera Energy (very defensive American utility company that includes the Florida regulated electric company and the American leader in “green electricity” (solar etc.).

At this stage, a number of uncertainties remain regarding the extent of the Covid-19 health and economic crisis, and this lack of visibility is weighing heavily on the markets.

We intend to remain selective and to reduce / remove the business models that are potentially damaged for the long term and to reinforce / buy stock in companies with long-term growth prospects and / or certain high-quality cyclical securities, in particular in the consumer sector and technology.

 

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 Edited by Groupama Asset Management – Headquarters: 25 rue de la ville l’Evêque, 75008 Paris – Website: www.groupama-am.com