Santalucia AM: “Rate cuts in the eurozone and the US give wings to the markets”

Doubts about economic growth momentum in Europe, especially Germany and France, deteriorating US employment data and the fact that inflation appears to be under control have triggered a long-awaited regime change in monetary policy on both sides of the Atlantic. “With the focus on avoiding recession and, ideally, achieving healthy growth in both regions, a key debate will be how far rates will be cut and how quickly monetary authorities will implement such cuts.“, notes Gonzalo Meseguer, CEO from Santalucia Asset Management in its latest quarterly letter to investors covering the third quarter of 2024.

This macroeconomic context had an impact.”positivein financial markets in the third quarter of 2024, continuing the good performance recorded since the beginning of the year, and “gives wings to financial markets” Fixed income has generally benefited from highera sense of urgency on the part of the Fed and ECB to reduce the price of money and once again demonstrated noticeable results».

For my 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… with the exception of geopolitical instability in the Middle East, which will undoubtedly be a source of volatility in the medium term”

Given this monetary policy outlook, the fixed income team has implemented active duration management.”took advantage of moments of excessive optimism about the economy, with rates rising, where rate cuts were largely discounted, to increase duration in portfolios“, indicates Louis Merino, responsible for fixed income, mixed income and fund selection.

Later, with bad employment data for July in the US., “The market ignored the upcoming recession in the US, which caused a strong revaluation of the bond market, which we took advantage of to make a profit and neutralize the duration of the portfolios.”

supported low weight in France, risk premium increased due to political and budgetary problemsas well as overweight in Italy and the credit market, which has shown greater strength and stability in recent months. As a result of this tactic, at the end of the quarter Fixed income funds present returns of more than 3%: Santalucia Short Term Fixed Income (3.15%) and Santalucia Fixed Income (3.74%).

“Equity funds responded very well to the rate cut. The companies in the portfolio are carefully selected so as not to depend on exogenous factors. All of our companies will be able to grow at a very healthy rate, no matter where we are in the cycle. But lower interest rates always help and allow equity funds to continue to offer very good returns.“, comments Antonio Manzano, Head of Variable Revenue.

As of September 30, 2024 profitability Global Style Equity Funds Composite Annual ReportEuropean and Iberian exceed 10%. Santalucía International Variable Income Class A provided a return of 15.32% during the period, followed by Santalucía Ibérico Acciones A (12.81%), Santalucía Quality Acciones Class A (12.54%) and Santalucía Grandes Compañías EuropeanA (12 .68%).