the long-term scenarios

the long-term scenarios

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Just four months ago, the idea of ​​a global pandemic keeping nearly half the planet confined to their homes could seem crazy to more than one. However, it happened, submerging the ‘status quo’ in deep chaos and leaving an unprecedented panorama that has transformed our customs as a society, impacting strongly on the economy and on financial markets.Thus, since the beginning of the year, confusion and uncertainty have completely penetrated investor sentiment, entering a terrain of strong historical collapses in global markets.

For analysts at the independent French management company Carmignac, the speed with which the markets have corrected since the start of 2020 – with declines of up to 30% – reflects a change of consciousness in many investors who, until now, have based their strategy on following market trends “although these were artificial. ”

Years of stability, and now?

In the last decade, the passive management has gained momentum. With this option the investor has several alternatives: he can buy shares of a company in the market in which he is listed or invest in the stock index, that is, bet on an Ibex company, for example, or directly invest in the 35 groups that it’s made of. Passive investment funds basically rely on this last strategy: they replicate the evolution of the index, entrusting profitability to the course of the market.

But the prominence that this type of management has gained has to do, in a way, with the low volatility –Low swings in asset prices– that have splashed the stock markets in recent times.

“This crisis has exposed the fragile environment in which markets have operated for years”

It was the years of exceptional monetary policies that contained price shocks, he explains. David Older, Head of Equities at Carmignac. For the manager, this climate of tranquility has kept the investor “settled in stability” for a long time, even seeing this scenario of low risk and low profitability as “normal”. In this line, the French firm considers that “this health crisis has exposed the fragile environment in which the markets have operated for years.”

Passive management is undoubtedly suffering from this crisis. But in the middle of the bear market, there seems to be a silver lining that points to active management, or at least that’s what the data says: a recent StyleAnalytics study It shows how active quality managers outperformed passive investment during economic recessions. And not only that; They also achieved higher returns than the Russell 1000 of large American companies. This study is based on the analysis of 1,000 actively managed US funds from 1995 to 2020.

End of the ‘miracle’ of passive management?

The radical action of central banks and governments in this crisis has given a breather to the markets, which have pointed to recoveries in recent weeks. However, the manager’s analysts consider it likely that, for the time being, these will continue to be strongly waves of instability.

The French firm predicts that the great budget deficits derived from the covid-19 crisis but directly financed by central banks at very low interest rates, they could generate mistrust that would permeate all economic actors – individuals, companies and governments – generating more prudent attitudes in them.

The question of whether central banks They are truly prepared to sustain the crisis. It continues to haunt the environment. The pandemic came in a context in which these were in the crosshairs and close to exhausting their ammunition. Although they have pledged to act without limits to restore normalcy in the debt markets, Carmignac believes that “the fact of the matter is that central banks can no longer claim to be the driving forces of an economic revival”, and the role of greater effort will fall, this time, on the Governments.

“There is little cooperation between governments and an open tension between China and the US that will end up weighing on world trade”

For the manager, this scenario would hinder a V-shaped recovery (quick return to economic normality). In addition, his team of analysts sees this event as unlikely without several quarters before, since, in the event that the pandemic began to lose momentum quickly, “on the one hand, we would expect consumers to remain cautious in the face of second waves contagion, and on the other, that the groups preferred to strengthen their balance sheets before spending. ” To this should be added “little cooperation between governments and open tension between China and the United States that will end up weighing on world trade.”

Didier Saint-Georges, managing director and member of Carmignac’s Strategic Investment Committee, believes that for savers this scenario can mean “the end of the miracle of passive management and lead to the rediscovery of the virtues of active management, capable of managing market risks and select companies capable of differentiating in the long term. ” Of course, at a time when volatility and uncertainty have taken over the game, the analytical skills of active managers can play a decisive role in the search for opportunities.

How to minimize risk

Active, bold and flexible management capable of adapting to market movements has notable advantages when falls show a clearly downward trajectory, as at the moment. This management style, added to carrying out independent risk analyzes (without links to any other entity), is what makes up Carmignac’s DNA and forms part of the foundation on which its company was built. Patrimoine philosophy over 30 years ago.

The multi-asset approach is another of the characteristics that define its funds: diversify assets in which it is invested to spread the risk. To carry this out and to achieve more investment possibilities, Carmignac covers the entire international territory through the Patrimoine range with the Patrimoine strategy, which reaches global investments; the Emerging strategy, oriented to emerging markets; and the Europe strategy, focused on investment in Europe.

The manager is focusing its portfolio on changes in consumer habits and production of companies

To weather the situation, the manager is focusing its portfolio on changes in consumption habits by people and production by companies (accentuated in some cases by confinement), maintaining its investments in China, carrying out strategies that allow controlling risks and taking advantage of specific opportunities in corporate debt, among other initiatives.

Carmignac is an independent asset manager founded in 1989, and is among the leading European players in this segment. At the end of March 2020, it has more than 2,000 million euros of share capital; € 31 billion of assets under management and 47 fund managers and analysts. Currently, its funds are distributed in 16 countries.


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