Elections and ungovernability will probably change the pace of the markets which in recent months seemed to have rediscovered the path of confidence. And those who have gotten carried away by excessive optimism will now probably have to review their investment strategy calmly and in cold blood.
"There was no reason for the euphoria of the months spent on the price lists - comments Pier Alberto Furno, CEO and senior portfolio manager of Nemesis Asset Management, a London-based management company – was not supported by economic data and we then saw this with the downgrades of France and England. And now we have reached the crucial point with these electoral results, ungovernability will create political discussions again, there will be European summits again and the problems will remain there”.
For those like Furno who haven't gotten carried away with enthusiasm, the scenario hasn't substantially changed: gold hasn't has never left the portfolio and has a selective approach to stocks in a value logic. Because the baseline scenario is that eventually the Final Solution will see inflation rise. “I don't think that governments have any other solution, apart from default, if not inflation as a desired factor to solve the debt problem – says Furno – So for me the story of gold is not over, both as a protection and as a returns. In one of our funds, gold is 9% of the asset allocation”.
Space also for raw materials, both soft and metals. "The former - explains - Furno - continue to be necessary thanks to economic lungs such as China and Brazil, for the latter, as well as representing a protection against inflation, the demand for certain industries such as technology continues to exist".
On the equity front, markets will feel the pinch in the wake of the sales of those who in the past months had taken positions driven by euphoria. But the risk for portfolios, warns Furno, is not in equities, but in bonds. “At first the stock markets react badly – Furno explains – those who get carried away get burned and go out and take refuge in bonds where the risk, however, is that of getting burned permanently. Seeking security in government bonds is pure suicide. If we invest in the bund we pay the price of psychological safety by losing capital, especially if the final thesis is that of an inflationary scenario”.
Just as they don't like corporate bonds, so much so that not even these find space in the Nemesis location asset. The portfolio is in fact made up of 60% equity and the rest divided between commodities and cash. Liquidity, which is currently held at a high percentage, indeed plays an important role in the strategy. In fact, in the inflationary scenario, it is not a parking lot for yields but has the objective of having ammunition available to exploit market volatility to invest or increase the exposure of companies targeted and whose prices are expected to decrease equity.
In fact, equity remains the healthiest investment for Furno from a long-term perspective, albeit with a cautious approach. “In the long term we remain positive – explains Furno – shares will remain a healthier investment than going to finance debts by buying bonds. Of course, we didn't get carried away, we are cautious and aim for a value and bottom up approach that targets niche companies that generate cash flow".
