Asset Allocation

The high-yield market has recovered nicely from the corona-induced market crash, but further price appreciation is becoming increasingly unlikely, says manager Ulrich Gerhard of the BNY Mellon Global Short-Dated High Yield Bond Fund in an interview with Investment Officer.

Despite the Grand Duchy’s status as Europe’s largest investment fund centre, Luxembourgers hold almost four times more money in bank deposits than in funds.

Have hedge fund managers just lost it? More and more leading managers are returning assets to their clients. The reason is the melt-up of the market, making it ever harder for short-sellers to identify profitable trades.

For example, this summer John Paulson (photo), who earned $15 billion from the collapse of the US housing market in 2008, known as “The Greatest Trade Ever”, announced his departure from the hedge fund industry. Others, such as George Soros, Stanley Druckenmiller and David Tepper, preceded him.

After the relaxation of the inflation target by the Fed, investment experts are rushing to predict a sustained rise in inflation. But for now, there’s no sign of inflation at all. Last week it even turned out that, for the first time since 2016, price levels in the eurozone had actually fallen.

The Fed’s announcement last Thursday that it will now target an ‘average’ inflation rate of 2% is a huge game changer for investors and asset allocators, says Philippe Gijsels, head strategist at BNP Paribas Fortis.

Dividend payments fell by a record 22% in the second quarter, hitting their lowest level in eight years, according to the latest Global Dividend Index from Janus Henderson Investors. Europe and the UK were the worst affected regions.

Back in May, the asset manager had already predicted a decline in dividend payments between 15% and 35%. Global dividend fell by $108.1 billion (€91.3 billion) to $382.2 billion in the second quarter.

In mid-July, Bloomberg published a revealing, or if you wish, shocking message: a list of the fifteen ultimate corona crisis stock market winners. The top-10 consists of ten men, almost all of them 50+ and almost all of them are American.

The coronavirus crisis has hit the hotel market hard. So one may expect this to negatively affect the demand for hotel real estate as an investment. Nevertheless, Schroder Real Estate Hotels has raised more than €400 million for its first pan-European hotel fund.

The majority of the capital has so far been pledged by major European insurance companies. Robin Hubbard, head of Real Estate Capital at Schroders, declines name any of these, but he does see a common denominator among the institutional investors who have committed to the fund. 

The market value of big technology companies such as Facebook, Apple, Amazon, Microsoft and Alphabet (Google) have risen much faster than the market average over the past decade. Christophe Braun, Investment Specialist at Capital Group, believes these mega-caps can grow even bigger, as they are well-positioned to ride out a weaker global economy over the short to medium term, and have the opportunity to monetise new or existing services that could support their share prices.

On 1 September 2020, Rajaa Mekouar will leave her CEO functions at LPEA, the Luxembourg Private Equity and Venture Capital Association, to fully focus on her PE/VC Head and Portfolio Manager functions. She will be succeeded by Stephane Pesch, who has served as the LPEA’s Director of Strategy since October 2019.