MEGA – Make Europe Great Again!
After a very good January, equity investors suffered losses in many market segments in February.
This mainly affected our investment building blocks that invest in expensive technology as well as high-quality growth companies.
Shares in small to mid-sized companies were also affected. These were joined by Indian stocks as well as equities from Taiwan, Korea and Japan. The latter also tend to be categorised more in the technology sector, as the indices of these countries are often dominated by technology stocks (e.g. Taiwan Semiconductor, Samsung Electronics, Tokyo Electron, Softbank, etc.).
If you look at the so-called factor indices, you will see that small companies (MSCI World Small Cap Index), quality companies (MSCI World Quality Index) and trend stocks (MSCI World Momentum Index) have all suffered losses in February. Except for the MSCI World Small Cap Index, these indices are also all dominated by technology stocks.
These developments highlight that the market rotation out of expensive technology stocks (Magnficient 7) is gaining momentum. We are not really surprised by this as stock market valuations tend to mean revert. That said, these very popular tech stocks have been able to maintain their high valuation levels for considerably longer than many market participants would have expected.
In contrast to the poor performance of the mentioned factor indices in February, the MSCI World Value Factor Index, which invests in exceptionally inexpensive shares as measured by low price to book and price to earnings ratios, recorded significant gains. This was most evident in German, European and Chinese equities, all of which had very low valuations and were therefore attractive buys.
We have been waiting a long time for the ‘value factor’ to make a comeback, as although the factor performs well in the long term, it has lagged far behind the broad market over the past two decades.
It is questionable whether there will be a sustainable reorientation of investors here or whether we will merely see a flash in the pan, which also occurred in 2022.
In addition to the positive development of value factor strategies, we could also witness attractive gains in dividend strategies, which also displayed comparatively low valuations at the beginning of the year.
The good performance in Germany, China and Hong Kong is surprising in many respects, as these markets were all seen as losers from Trump’s policies. So, it’s rather ironic that after it was also announced today that there is to be a constitutional amendment in Germany regarding the debt brake, MAGA (Make America Great Again) may be turning into MEGA (Make Europe Great Again).
Let’s hope that this really is a jolt through the old continent and not just a moment of awakening. A strong third force alongside America and China would certainly lead to more stability in international co-existence.
In contrast to some losses in our high return (equity) investment modules, our safety modules, which invest primarily in the money market or high-grade fixed income markets, were able to record gains across the board.
This is not least because Trump’s erratic policies are leading to considerable uncertainty among international investors and American consumers alike. Such uncertainty should slow down the US economy, which will benefit the bond markets.
Commodity markets and gold had a stable February but were unable to build on the gains of January.
The US dollar appears to have peaked and suffered losses in February, which have accelerated after the announcement of higher defence spending in Germany. As far as the purchasing power parity of the U.S. dollar to the most important world currencies is concerned, an overvaluation can be assumed in any case. We would therefore prefer to reduce any U.S. dollar positions in favour of European or Asian currencies.
For ‘fresh money’, we recommend the proven concept of FairHorizons, which we have developed. It offers a simple way of creating portfolios that can beat inflation and earn attractive risk premiums.
We would suggest the following strategy for the coming quarters as part of the FairHorizon concept:
– (purple colour) Invest money that will be needed in a maximum of one year in the money market modules P5 and P7 or benchmark Portfolio 1.
– (blue colour) Invest money that will not be needed for a maximum of 4 years in portfolio module Portfolio 2 or combine modules B15 and O1 in a ratio of 80/20;
– (green colour) Invest funds that will not be needed for up to 7 years in portfolio module Portfolio 3 or combine modules B15 and O1 in a ratio of 60/40;
– (yellow colour) Invest funds that will not be used for up to 10 years in portfolio module Portfolio 4 or combine modules B15 and O1 in a ratio of 40/60;
– (orange and red colour) Invest money that will not be needed for more than 10 years in portfolio module Portfolio 6 or our quality equity portfolio Q.
It is always a good idea to review your portfolio at the start of the year. I would therefore like to take this opportunity to invite you once again to discuss your portfolios with us.
Otherwise, I would be delighted if you could tell your friends and acquaintances about Das Family Office, one of the few ‘fee-only’ investment advisors in Asia, so that they can also become part of our community.
With best wishes for a wonderful March!
Yours,
Mario Becker
