Rate cuts in the eurozone and the US give wings to markets
Doubts about economic growth momentum in Europe, especially in Germany and France, deteriorating US employment data and the fact that inflation appears to be under control have prompted a welcome change in monetary policy regimes on both sides of the exchange rate. Atlantic. “With the focus on avoiding a recession and, ideally, achieving healthy growth in both regions, a key debate will be how much rates will be cut and the speed at which monetary authorities will implement such cuts,” he says. Gonzalo Meseguer, CEO from Santalucia Asset Management in its latest quarterly letter to investors covering the third quarter of 2024.
This macroeconomic context had a “positive” impact on financial markets in the third quarter of 2024, continuing the good performance recorded since the beginning of the year and “giving wings to financial markets.” Fixed income as a whole benefited from a greater “sense of urgency on the part of the Fed and ECB to lower the price of money and again performed strongly.”
For their part, stock markets welcomed the rate cut with “optimism and should be supported in the coming months by lower interest rates, which will create a favorable economic environment that will help accelerate corporate earnings growth.” geopolitical instability in the Middle East, which will undoubtedly become a source of environmental instability. term”.
Fixed Income Behavior
Given this monetary policy panorama, the fixed income team has been actively managing duration, “taking advantage of moments of excessive optimism about the economy, with rates rising when almost The reduction in rates was not taken into account to increase the duration of portfolios.“, indicates Louis MerinoResponsible for fixed income, mixed funds and fund selection.
Subsequently, amid poor US employment data last July, “the market ignored the impending US recession, causing a strong overvaluation of the bond market, which we took advantage of to profit and offset wallet duration.” .
It remains underweight in France, with risk premiums rising due to political and fiscal concerns, and overweight in Italy and in the credit market, which has shown greater strength and stability in recent months.
As a result of these tactics, at the end of the quarter, fixed income funds showed returns of more than +3%: Santalucia Renta Fija Corto Termo (+3.15%) and Santalucia Renta Fija (+3.74%).
Stock performance
“Equity funds responded very well to the rate cuts. The companies in the portfolio are carefully selected so that they are not dependent on exogenous factors. All of our companies will be able to grow at a very healthy rate, regardless of when rates fall. But lower interest rates always help and allow variable income funds to continue to offer very good returns,” he comments. Antonio Manzanoresponsible for variable income.
As of September 30, 2024 profitability The accumulated annual value of global, European and Iberian variable income funds exceeds +10%. Santalucía International Variable A Class delivered a return of +15.32% during the period, followed by Santalucía Ibérico A (+12.81%), Santalucía Quality A Class (+12.54%) and European Larges Santalucía A (12.68%).