With a year to go until the next US presidential elections, it does not seem too early to start thinking on what the election means for investors.
Ion Zulueta, Arcano Partners' head of manager selection, says the yield curve inversion and its history of predicting recessions in the US, is not necessarily an indicator to use alone.
How likely do you think leading indicators such as the inverting of the yield curve will actually be followed by a recession in the US in the coming year?
We are maintaining our exposure to US equities through a manager that tends to outperform greatly in downward markets. This said, we have a clear preference for cheaper markets like Europe and EM."
Making calls on the economic cycle is a bit like market timing, which is something one should try to avoid as the vast majority of us detract value getting in and out of the market.
We instead feel it is more useful to focus on larger economic trends. In this regard, in an environment where central banks are so dovish and there is an increasing debate on Monetary Policy 3, we have recently been increasing our exposure to gold.
At the same time, linked to the described environment, we see real yields staying low for longer, which should be supportive for private markets. This idea has led us to increase our clients´ portfolios´ exposure to these markets to the detriment of public markets.
How likely do you think that US stocks will perform well over the coming election year?
We do not invest on a one year horizon for our clients in the multi-family office. Making markets predictions on such a short period of time is quite worthless and risky.
This said, I can say we remain cautious on the US equity market and are mainly invested through a great manager investing in high quality companies at cheap valuations. When the end of the bull markets comes to an end, if past track record serves as a guide, they should deliver a large amount of excess return.
Do you expect launches of new US asset-related funds to continue, eg, new ETFs or new actively managed funds?
It seems there is more appetite among investors for passive strategies, but I think this is mainly due to them looking at the rear view mirror. If supply follows demand, I guess there will be more launches in the passive than in the active space.
However, this will change at some point. Moreover, the active management industry is slowly adapting to the new circumstances and I see the launch of Aperture Investors as very refreshing as it mixes the positive attributes of the active and passive management industries.
Are you re-assessing your US/North America exposure? If so, why?
As previously said, we are maintaining the exposure to US Equities through a manager that tends to outperform greatly in downward markets. This said, we have a clear preference for cheaper markets like Europe and Emerging Markets.
Two areas where we may gain some more exposure to the US, is structured credit and technological companies. Regarding the latter, we think investing in venture capital funds is a more clever way to capture the growth in that sector.
With regards to structured credit, we are working on a due diligence of a liquid alternative manager who is investing heavily in legacy non-agency RMBS. It is a low risk strategy, with an attractive prospective return and exposed to the US housing market and the US consumer, that seem to be in good shape and not so advanced in the cycle like the corporate credit market.