Can you invest in times of crisis?


“The last 12 months have been chaotic in economic and financial matters. Right in the middle of 2020, we are experiencing one of the worst health crises in history and the most serious economic debacle in practically the last 100 years,” said economist Guillermo Beard a few weeks ago … and he’s right, although today, it seems that for now that does not seem to worry the taxpayer too much … for now.

And it is in this scenario in which it is even more important to choose well our investments in the markets. If our choices are correct, we can take advantage of the current economic catastrophe to generate significant capital gains in the future. If we are wrong in our decisions … we better not think about it.

But where to invest in times of crisis? We have been publishing various recommendations on these pages answering this question. Today we will see what the mentioned Beard considers:

The fear of losing and the ambition to earn as much as possible are the main ones responsible for giving investors the push to buy or sell different financial assets: when they are afraid, they buy the assets that act as safe havens of value. When they are ambitious and feel secure, they buy the highest risk and highest earning potential instruments.

Shelter assets are those that even in the worst scenarios will help us win or at least not lose. In this category are for example AAA-rated bonds, reserve currencies in liquid form (dollar, euro, yen, pound sterling, Swiss franc), gold, etc.

The emotion that causes its rise is fear.

On the other hand, risk assets do not offer any guarantee of safe returns. The bet with them is to win through speculation, that is, buying low and selling high. Here we find the currencies of emerging countries, their stock markets, “junk” bonds, cryptocurrencies, etc.

The excitement that makes them climb is ambition.

With this in mind, it is easier to explain and understand why it is so important to follow daily the prices of the indices of the stock exchanges, raw materials, bonds, etc., and above all, anticipate the demand for assets that will appreciate more in the future.

You want to buy instruments that are relatively cheap today but will be appreciated in our favor later.

To illustrate this, let’s remember how fear of the coronavirus and the great confinement brought the US stock index S&P 500 down from 3,386 points in February to bottom at 2,237.40 in March. Since then, the hope of a quick recovery in the form of a “V” led to an irrational optimism that made him erase what was lost.

However, the economic reopening in Europe and the United States is bringing a logical outbreak of Covid-19 that is starting to change the mood towards fear and pessimism again, which could bring down financial markets again.

For its part, gold was not without downward pressures, but its decline was only a temporary correction from which it has recovered since March to continue its bullish streak that it has maintained since 2015 … and that will continue.

The climate of uncertainty is returning to the world and it is not ruled out that the pessimism that we had until just a few weeks ago will return.

This, then, is one of those situations we alluded to above: safe-haven assets are the place to be when it comes to investment right now. After the apparent calm, a new phase of the economic storm will be felt.

Flexibility, adaptability, resilience are some of the qualities and advantages of investing in thematic funds through the DPAM NEWGEMS

Identifying the winning themes of the future and, within them, the leading companies in the coming years is not available to everyone. Therefore, the best option is to do it through specialized managers and, if it is through a product that combines the 7 disruptive themes of the future, it is the DPAM Invest B Equities NEWGEMS Sustainable.

Adaptable, resilient and flexible: three qualities the thematic investment through the DPAM New Gems

To talk about topics of the future is to talk about topics related to technology with all the subtopics that it entails: cloud computing, intelligence, biomedical research … etc. But it is also talking about nanotechnology, ecology, wellness, Generation Z, manufacturing 4.0 or security. Themes that, in one way or another, are linked to the great demographic, social and economic trends that are being defined today looking to tomorrow. Gonzalo García Valero, responsible for advising at Caser Asesores Financieros recognizes that issues such as the aging of the population “we like but it is true that, within this theme, there are others such as consumption, tourism for the elderly … and where we see great potential is in topics such as video games, e-commerce – which is also growing at the real estate level with the creation of logistics points – and issues related to water, health, safety…. ” See: DPAM Invest B Equities NEWGEMS Sustainable: possibility of investing in 7 megatrends in a single fund.

A multitude of topics and stories in which to invest in which it is sometimes difficult to identify who will be the winners. Juan Hernando, head of fund selection for Morabanc says that today there are many very good topics, but “when making a portfolio it can be difficult for me to choose the 3-4 winners. This type of multi-thematic approach seems to me quite accurat.

Manager experience, correlation and coherence: three qualities to look for in the thematic funds

It speaks of an approach like that of DPAM Invest B Equities NEWGEMS Sustainable, a global equity fund that invests in the seven themes mentioned above. But how do these strategies fit in at a time when most economies are in recession? What role do they play in the portfolio at a time like today? Javier Martín, partner of Ursus 3 Capital assures that “the themes are no more than evidence of human needs and, therefore, there will be business opportunities for a long time.” In fact, from the sector they assure that they are investment trends that will grow even above what the world will do in the coming years.

This expert recognizes that, throughout the coronavirus crisis, sectors such as infrastructure or the real estate market have been seen as economies such as ASia or the United Kingdom have suffered, for different reasons, and where he currently finds attractive valuations . And, in addition, there are the small and medium-sized companies. In this sense, it is important to think about which will be the disruptive businesses and which will be the disrupted ones. “There are traditional sectors that are disrupted in which we do not invest, an example are the European and Spanish entities, although we do not discriminate by sector, since we have paypal and Visa in our portfolio,” says Amparo Ruiz Campo, Country Head Iberia and Latam of DPAM.

When it comes to having an approximation to the funds that it invests in these issues, from Morabanc they consider it key to see what is the economic sense of the investment, what is behind it. “There are themes that can be very striking and that is not your time. The theme itself is one thing and whether it makes economic sense or not is another, ”says Hernando. In addition, assures this expert, it is important to analyze who is the manager and his experience managing the topics; the valuations of the companies in which it invests and try to see both the biases and the correlation that the different themes have with each other. Caser’s expert would also add the portfolio’s own composition. “Normally when I analyze investment funds linked, for example, to the autonomous vehicle Google, it is the first position but it is also in funds that invest in artificial intelligence or finance. It is necessary to know what is the percentage of income that the company has to have in a subject to justify the investment in it ”. This expert believes that if Artificial Intelligence reports 5% of the profits to Google, there is no point in having a 6% position in the portfolio.

A type of investment, the thematic, which has a growing demand in the Spanish market. From Caser they believe that the Spanish investor is increasingly aware and the thematic part of the investments has greater importance in their portfolios “because the thematic funds have shown to have tremendous resilience, flexibility and adaptation to change and, in the long term, have offered a profitability-risk binomial more attractive than other strategies ”. And also, these themes are stories that the client understands perfectly because he is living them.

On the supply side, Consuelo Blanco, head of funds for Investment Strategies believes that the supply of products in Spain is varied and “there are very good products.” An offer that has probably taken over from the sector funds. From Morabanc they speak of a transversality of these strategies since the same theme “can cover 3-4 sectors. The offer at the national funds level has grown a lot, and an important part has been due to the results and evolution, but another has been due to the story. It’s a nice part of explaining. ”


European equity plans, a good time to enter?

The response to the crisis by European countries can boost equities in the region
Is it a good time to invest in European equities?

Europe’s political response to the shock caused by the virus was slow initially, but a wide and impressive range of fiscal and monetary measures are finally being applied to save the economy during this period of crisis.

On the other hand, the euro zone has had relative success in slowing down the advance of the virus, placing itself in a position that has allowed it to reopen its economy. Both factors can support both the economy and the European markets in the coming months.

Investors in pension plans with a long-term retirement date and a very high high risk profile can find a profitable investment opportunity in pension plans in the VDOS category of International Equity Europe.

Although they have not yet recovered from the deep pullback in March, they have taken a major step forward in the past three months. His assessment is attractive and his expectations for the rest of the year have improved.

DEUTSCHE BANK RV EUROPA is the best performing three-month plan of this group, rated five and four stars by VDOS, with a revaluation of 16.46 percent.

At one year it registers a drop in profitability of -1.75 percent, very low compared to the -8.09 percent average for its category, with a fairly controlled volatility of 21.82 percent that places it in the second best group of its category for this concept, in quintile four. It invests 87.5% of the fund’s assets in equities, with fluctuation bands of +/- 12.5 percentage points.

These investments correspond mainly to securities listed on stock markets in the European Union, never to Asian or American securities. Fixed income investment stands at 12.5% ​​of the fund’s assets, with fluctuation bands of +/- 12.5 percentage points, in both public and private issues, and denominated at least 95 percent in euros.

Its largest positions include shares of NESTLE R (3.68%) SAP (GR) (3.19%) ALLIANZ SE (3.12%) AIR LIQUIDE (2.39%) and CRH (2.15%) . It has assets under management of 49 million euros, requiring a minimum initial and periodic investment of 30 euros to sign this plan, which applies a fixed commission of 1.50 percent and a deposit of 0.11 percent.

MAPFRE EUROPA obtains a three-month yield of 15.84 percent, leaving -0.36 percent at one year (category average of -8.09 percent) with a controlled volatility figure in this last period of 18.41 percent, which places it among the best in its category for this concept, in the fifth quintile. It invests a majority percentage of the equity in variable income assets, also in public and private fixed income with a high credit rating, mainly in Public Debt of EU / OECD Member States and euro securities of highly solvent issuers.

It has assets under management of 58 million euros, with the largest positions corresponding to Grifols SA A (3.59%) Diageo PLC (3.51%) Roche Holding AG Dividend Right Cert. (3.49%) Novo Nordisk A / S B (3.48%) and Textile Design Industry

SA (3.25%). The minimum initial and periodic contribution that must be contributed to subscribe and maintain this Mapfre Vida Pensiones plan is also 30 euros.

In the last three months, IBERCAJA DE PENSIONES EUROPA SOSTENIBLE has gained 14.89 percent in profitability and one year has yet to recover 3.51 percent (category average, -8.09 percent) to offset the decline in last March.

Also at one year, it registers a reduced volatility data of 19.85 percent, positioning itself in the group of least volatile plans in its category, in the fifth quintile. Its equity exposure is at least 75 percent, corresponding mostly to European issuers.

For the selection of assets to include in its portfolio, in addition to the traditional fundamental analysis of the portfolio, it applies socially responsible investment strategies (social, environmental and corporate governance criteria of the companies in which it invests). Its largest positions are in Sanofi (5.60%) Iberdrola (4.28%) Allianz (4.15%) AXA (3.71%) and Danone (3.31%). The minimum periodic contribution to subscribe and maintain this plan is 18 euros, taxing its participants with a fixed commission of 1.50 percent and a deposit of 0.20 percent.

Confinement began in Europe relatively early and caused mobility to plummet. That sharp drop was a major drag on economic activity in the short term, but it helped curb the spread of the virus more effectively.

Now mobility has rebounded rapidly in Europe and is practically at the same level as in the United States. A good indicator that, if combined with a possible lower risk of virus outbreak, which could result in a more vigorous economic recovery than in other regions during the second half of the year.

Coronavirus weighs down Latin American currencies against the dollar

The spread of the coronavirus and fear of a significant impact of the disease on the global economy have encouraged investors to abandon the currencies of the most vulnerable emerging countries and seek refuge in the dollar, which has resulted in depreciation. sustained of Latin American currencies.

This behavior will facilitate exports from Latin American countries, but will make most imports more expensive and will make it difficult to pay off the debt, public and corporate, contracted in dollars.

So far this year, the Brazilian real has devalued by around 12%; the Colombian peso and the Chilean peso, almost 9%; the Peruvian sol and the Mexican peso, about 5%; and the Argentine peso, around 4%.

According to Javier Santacruz, professor of economics at the Institute for Stock Market Studies (IEB), this evolution shows that investors are convinced that Latin American countries will launch monetary and fiscal stimulus plans.

“This effort to continue putting liquidity on the table and more public spending has a depressing effect on currencies,” he points out.

Santacruz stresses that in times of uncertainty, “the dollar always acts as a safe-haven currency.”

Along the same lines, Juan Carlos Higueras, a professor at the EAE Business School, maintains that investors choose the dollar because the currencies of emerging countries “are at high risk of devaluation.”

As for the effects of this situation, Higueras points out that it will affect imports from Latin American countries “that will be more expensive.” “The positive effect is that they are going to export more and that is good for the economy,” he explains.

Germán Ríos, professor at IE Business School, advances that the situation may change after the US presidential elections.

“If the North American economy begins a process of weakening, we will have an exchange rate that is closer to the historical average,” he points out.

In Brazil, the depreciation of the peso so far this year is added to the decrease registered in 2019 by factors other than the coronavirus, such as the drop in interest rates to historical lows.

As the chief economist of the consulting firm Necton, André Perfeito, explained to Efe, the impact of the coronavirus in Brazil cannot yet be specified, but the effects could become “particularly dramatic” because China is its main trading partner and the country that more raw materials you buy.

In his opinion, the crisis caused by the coronavirus could affect both Brazil’s trade balance and its stock market, in which large companies that export raw materials, such as the mining company Vale, participate.

In the case of Mexico, the depreciation of the peso responds to a lower appetite for risk and uncertainty due to the impact of the coronavirus, points out Efe Luis Alvarado, an expert at Banco Base.

Although 21% of the Mexican sovereign debt has been issued in foreign currencies – dollars, euros, yen, pounds and Swiss francs – Alvarado believes that the depreciation of the peso would only have noticeable negative effects if it were very severe.

As for Colombia, the dollar has moved this week to highs for the year with respect to the peso.

According to Federico Corredor, a professor at the Faculty of Economics at the Externado de Colombia University and an expert in markets, the exchange rate depends on many factors, including the expansion of the coronavirus.

In his opinion, the current volatility makes it impossible to determine if the dollar will remain at current levels or if there will be any adjustment soon.

In Chile, the wave of protests against inequality is added to the threats derived from the epidemic.

The Assistant Manager of Studies of the Chilean consulting firm Econsult, Mauricio Carrasco, explained to Efe that the depreciation of the peso is related to the drop in copper prices, caused by the expansion of the coronavirus.

“When the peso depreciates, it becomes more difficult to pay the debts, but one of the advantages we have is that a large part of the external debt is from mining companies, which makes it a long-term debt and that it is less exposed to these punctual fluctuations “, he explains.

The social outbreak has plunged the peso to its lowest levels since the beginning of the century, which led the central bank to make a historic intervention in the exchange market.

On the evolution of the sun, the analyst Marco Alemán, from Kallpa SAB, hopes that the coronavirus crisis “will sink a little more” in the Peruvian currency against the dollar.

In his opinion, “what investors do in these scenarios is to take refuge in solid assets.”

Alemán warns that the appreciation of the dollar “makes the public debt” more expensive in Peru, although he hopes it will be somewhat transitory.

In Argentina, the currency market has a particular behavior due to the restrictions on the purchase of dollars imposed in August.

In this sense, the official price of the dollar is conditioned by the interventions of the central bank.