July – a very good month on the stock market!
In most years, July is a good month on the stock markets, which is then often followed by a volatile period between August and November. This year, the month surprised with a very good performance in almost all global markets. Only Indian equities and shares from Latin America and the healthcare sector suffered losses.
The shares of large American companies performed exceptionally well. This was accompanied by a somewhat stronger U.S. dollar, which helped the performance of non-U.S. Dollar investors.
Asian equities also had a good month, except for India. Singapore stocks did surprisingly well and continue to look attractive.
Apart from Switzerland, which traditionally has a strong weighting in the healthcare sector, European stock markets also recorded gains. However, the outperformance of Europe compared to America that has been observed since the beginning of the year has lost momentum.
For the year, however, European equities, led by the German DAX index, are still far ahead in terms of performance. The same applies to Asian and Latin American equities. This is a development which we haven’t seen in many years.
Global bond markets enjoyed generally positive returns in July for U.S. Dollar investors. This includes long-dated U.S. treasuries, which had been sold off in recent months.
Specialty bonds in the Tier 1 Capital/Coco segment or Emerging Market High Yield continued their positive development and built upon the attractive returns achieved in prior months.
The high level of government debt and expected new borrowing in Europe and America tend to focus bond buyers on the so-called ‘short end’. It remains to be seen whether the recently achieved 5% yield for long-dated U.S. Treasuries will be the high for this cycle…
The brilliant recovery on the financial markets since April 7, which accelerated again in July, is very unexpected for many experienced market watchers. This is because the damage to the global economy caused by Trump’s aggressive tariff policy is far from fully understood.
What is certain is that there will be many losers, which will most likely be reflected in an increase in inflation and unemployment. At least that is what the latest economic reports suggest. However, the exact extent will certainly only become apparent in the late third or fourth quarter of the year.
On a positive note, the U.S. Federal Reserve is likely to cut interest rates further, which should be generally favourable for global equity and bond markets. However, the U.S. Dollar should continue to weaken if the Fed cuts interest rates, while central banks in Europe and Japan stay put. Non-U.S. Dollar investors should take this into account when building or reviewing their portfolios.
Due to the massive recovery on the global equity markets, we are now back at the valuation levels seen at the end of March, when we criticized the high valuations of major US technology companies.
Risk premiums have fallen back from 5.5% p.a. on April 7 to less than 4% p.a., which reminds us to be cautious. At these levels, we would not buy the S&P 500 Index, the Nasdaq 100 Index or similarly allocated funds and ETFs.
The same applies to the traditional MSCI World Index, which has a very high allocation to the overvalued darlings of today’s market (Magnificent 7).
We can currently only warm to the MSCI AC World IMI, which has a considerably lower proportion of large American companies and invests significantly in developing countries and smaller companies.
Community members who are already heavily invested in the mentioned building blocks should take advantage of the high valuation levels and rebalance their portfolios. Apart from the ‘Magnificent 7’ and certain ‘meme stocks’, which have once again run hot, valuations generally look moderate to favourable.
Bonds continue to look attractive, especially when compared to current or expected inflation rates.
Equity strategies that focus on low valuations and income (‘value’ or dividend strategies) are also relatively cheap. The same applies to equities from developing countries, Europe and Asia. (See high-rise charts on pages 4 to 6).
From this perspective, we can speak of a good environment for reinvesting money or adjusting portfolios away from U.S. (tech) stocks towards a more international strategy. We believe that a target size for U.S. equities could be in the region of 50% of an equity portfolio.
As mentioned several times, we have expanded our range of European building blocks and added attractive investment ideas from Asia and Latin America. This gives our community a wide range of opportunities to react to changes in the global investment environment.
In this context, I would also like to point out that our investable benchmark portfolios from Dimensional Fund Advisors (Portfolios 1 to 6) are highly diversified and contain a significant allocation to non-U.S. and global smaller companies. With more than 10,000 stocks in many strategies, they offer more diversification than the popular MSCI World Index (about 1,500 stocks) or the MSCI AC World IMI Index (about 9,000 stocks).
Community members who are already invested here can therefore ‘sleep on’ with peace of mind, whereas community members who have perhaps found these building blocks too ‘boring’ should take a second look here!
In my opinion, the best orientation for the composition of a portfolio is the current valuation of an investment. This is because the current valuation of an investment is a good indicator of the expected ten-year return. We have therefore supplemented our high-rise charts with the ‘valuation traffic light’.
This ‘traffic light’ has worked well so far because high valuations (red) inevitably entail a higher risk of losses and lower expected returns than normal (yellow) or favourable (green) valuations. I’d therefore like to encourage you to use our valuation traffic light for future investment decisions!
For ‘fresh money’, we recommend our proven concept of FairHorizons, which we have developed based on established asset allocation principles. It offers a simple way of creating portfolios that can beat inflation and earn attractive risk premiums.
If you are worried whether your portfolio is well equipped for the significant changes in today’s world, just get in touch with us. We’ll be more than happy to check for you.
Otherwise, I would be delighted if you could tell your friends and family about Das Family Office so that they can also become part of our community.
With best wishes for a wonderful August!
Yours,
Mario Becker
CEO — [email protected]
Mario founded Das Family Office Pte. Ltd. in June 2017, following an 8-year tenure as Managing Director – Head of Investment Advisory for SE Asia at Standard Chartered Private Bank managing a team of 20 investment advisors and ultra-high net worth assets.
His early passion for investing was fulfilled with over 13 years in senior management roles at Deutsche Bank Private Wealth Management in Asia and Europe, leading global portfolio management products and teams with a focus on strategies for equity and multi asset class portfolios. A native German, Mario speaks fluent Mandarin Chinese and holds a Master’s degree, summa cum laude in Economics, Chinese Culture and Language from the University of Cologne, Germany.
