hugomanenti95 @hugomanenti95: "Dear all, A bit of a..."

Portugal

Edited

Dear all, A bit of a slow month here, with low volatility and steady gains – not going to complain 😉 As things stand today, the portfolio is at an all time high, and we overtook all indexes year to date... lots be be happy about! This post will summarise the main macro and micro developments of the month and explain how we were positioned to benefit from them. 𝟭. 𝗠𝗮𝗰𝗿𝗼 – 𝗜𝘀 𝘁𝗵𝗲 𝗙𝗲𝗱 𝗠𝗮𝗸𝗶𝗻𝗴 𝗮 𝗠𝗶𝘀𝘁𝗮𝗸𝗲? Faced with a couple of months of slightly hot inflation, the Fed decided to stay the course and maintain its guidance of three interest rate cuts this year. While this is positive for the stock market, this led many analysts to worry about the risk of an inflation re-acceleration (“no landing” of the economy). The reality, in my view, is that a soft landing was already achieved last year (using real-time rents, inflation was already below 2% last summer), and that parts of the economy are now indeed reaccelerating – in particular the manufacturing sector. Which in turn might push inflation slightly higher, although not at unreasonable levels. This all fits with my longer term thesis which has been that inflation would average closer to 3% over the next decade, due to: - Populism and population ageing resulting in higher Government spending - Chronic underinvestment in energy, natural resources, infrastructure - Geopolitics leading to supply disruptions, reshoring, etc. Faced with those inflationary forces and large Government deficits / Debt levels, Central Banks are cornered. Hike too much and risk bankrupting the Government and causing deflation. Hike too little and you risk having inflation higher than target. Central Banks will obviously chose the second which is seen as the lesser evil and allows Governments to invest in their key priorities – infrastructure, technology, national security, etc. This has been my thesis all along, and this is why I wrote to “fade the Fed” back in 2022 – they simply can’t do much about anything. And to answer the headline question – in my view, the Fed isn’t making a mistake, but it doesn’t matter anyway – they’re simply following the only path available to them. 𝟮. 𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗦𝘂𝗺𝗺𝗮𝗿𝘆 The above is why we own monetary hedges such as $BTC and $GDX , which have done really well this year. As the World further decreases the use of US Treasuries as collateral, we expect those assets to continue to perform very well. I was also tracking a rebound in manufacturing since the second half of last year, and I was pleased to see it continuing into Q1 2024. It took a lot of patience – two years of negative PMIs – but it seems that it is finally happening. The portfolio is benefitting from it through our investments in natural resources, equipment rental, electrification, etc. In terms of earnings announcements: ✅ Both Vistry and Persimmon confirmed that the UK housing market was slowly coming out its slump. I expect the next Government to be laser focused on increasing the supply of affordable housing, which would be great news for both companies. ✅ $VNA.DE (Vonovia SE) reported solid results, as expected. Migrations and lack of new construction are putting rents under pressure and I would expect that to last for many years. I expect VNA to continue to progressively deleverage its balance sheet, while delivering growing rental EBITDA. ✅ $CNXC (Concentrix Corporation) confirmed my thesis (written a few weeks ago) – Artificial Intelligence, while still early stage, is currently driving higher sales and margins rather than threatening its core customer experience business. Reaction to earnings was positive and I expect that a few more similar quarters will propel the stock higher. 𝗖𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻 & 𝗢𝘂𝘁𝗹𝗼𝗼𝗸 While I still see the $SPX500 as quite extended, with near record valuations and extreme bullish sentiment, I am starting to see signs of a broadening of the bull market, into small caps and cyclical businesses in particular, which is very positive and in line with the macroeconomic developments I am observing. We are very much benefiting from it but I am intent on controlling risk through our SPX hedge, as well as our diversification into low valuation / non tech stocks. I have reduced our beta and I will aim at making the portfolio less sensitive to macro events going forward. Wishing you all the best and a happy Easter to those who celebrate! Hugo

5 Mentioned

BTC

Bitcoin

GDX

VanEck Vectors Gold Miners ETF

VNA.DE

Vonovia SE

CNXC

Concentrix Corporation

SPX500