hugomanenti95 @hugomanenti95: "Hi all, I hope this finds..."

Portugal

Hi all, I hope this finds you well! It’s been an unpleasant April, as expected, but still many things to like within the portfolio. 𝗜. 𝗠𝗮𝗰𝗿𝗼 𝘈) 𝘎𝘳𝘰𝘸𝘵𝘩 The growth picture is still positive. GDP growth was strong in the USA, better than expected in China, and Europe is already out of a quick recession. Companies' earnings and guidance were positive, while leading indicators continue to improve. The largest risks remain interest rates and geopolitical developments, which have were negative this month. 𝘉) 𝘐𝘯𝘵𝘦𝘳𝘦𝘴𝘵 𝘙𝘢𝘵𝘦𝘴 Unfortunately, inflation data remained too hot – CPI, PPI, PCE, as well as the employment cost index today. Official data seems to indicate a lack of progress in the fight against inflation, which is causing interest rates to spike, specifically in the USA (Europe is looking much better). Higher interest rates are a burden for smaller companies and customers, and risk derailing the economic rebound we have been anticipating (and are seeing) this year. The impact could be particularly material on sectors that require large capital investments, such as construction and related sectors. 𝘊) 𝘎𝘦𝘰𝘱𝘰𝘭𝘪𝘵𝘪𝘤𝘢𝘭 𝘋𝘦𝘷𝘦𝘭𝘰𝘱𝘮𝘦𝘯𝘵𝘴 It is always important to keep abreast of political developments, even if their immediate impact is often minimal. April has seen a continuation of the Houthis’ attacks on Red Sea shipping, an intensification of the war in Gaza, a bombing of Israel by Iran, an escalation of the confrontation between Russia and Europe (with secret operations, GPS jamming and verbal threats), as well as further USA – China tensions. While each of those, in isolation, would be considered low-impact events, it is the pattern that raises eyebrows. The risks of direct confrontation between great powers are uncomfortably high. 𝘋) 𝘓𝘰𝘰𝘬𝘪𝘯𝘨 𝘈𝘩𝘦𝘢𝘥 While the micro looks great for most of our portfolio, the macro is starting to be a bit foggy. We will hear from Janet Yellen (Treasury) and Jerome Powell (Fed) tomorrow - they will likely be hawkish, potentially deepening the current correction. I still expect the disinflationary trend to persist until Q3 / Q4, with a robust economy, but we need to see that in the data now. Most real-time datapoints point to that, but the most important releases (CPI, PCE, ECI) have gone the other way. So at this juncture, my outlook has to remain cautious. We might need to put back some of our hedges in the near term. 𝗜𝗜. 𝗠𝗶𝗰𝗿𝗼 – 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀 Q1 earnings have been excellent for us so far, but unfortunately the macro has outweighed the good news. 𝗔𝗟𝗟𝗬 exceeded expectations despite higher rates. They are benefiting from their leading deposit franchise, strong relationships with auto dealers, as well as their improved underwriting. Lower rates will be a boost but are not needed. 𝗙𝗖𝗫, 𝗡𝗘𝗠, 𝗠𝗧𝗗𝗥 – best-in class operators all raised production and lowered cost guidance. What’s not to like? 𝗩𝗡𝗔 is turning a corner. Their portfolio of apartments offers stable and growing rental income. And now that the German housing market is bottoming, VNA will be able to play on the offense. Beat and raised full year guidance. 𝗧𝗠𝗛𝗖 beat and raised full year guidance as well. Contrary to most people’s expectations, the housing market is so unbalanced that higher mortgage rates barely matter. TMHC is executing very well and pursuing 10% topline growth from 2025 onwards. 𝗛𝗥𝗜 had a strong quarter and although they didn’t raise guidance for the year, I do expect them to deliver a very strong second half. The mega infrastructure projects stemming from the inflation reduction act are finally hitting the ground, and adding an extra kick to an already hot non residential construction market. 𝗜𝗜𝗜. 𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗣𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲 Our aim was to temporarily lower our beta and reduce risk. And when we compare April 2024 with 2022 or with Q3 2023, we can say that this was achieved. We are much closer to the market than we used to be when inflation scares drove everything to the ground. This was achieved thanks to a small hedge, greater weights in Gold / Silver / Commodity stocks, as well as lower exposure to interest sensitive stocks. It is unfortunate that today is a “run for the hills” kind of day, as it is hiding some of the great work we did. We are so far a little behind the SPX for the year, but well ahead of the equal weight and small cap indexes. 𝗖𝗼𝗻𝗰𝗹𝘂𝘀𝗶𝗼𝗻 - 𝗟𝗼𝗼𝗸𝗶𝗻𝗴 𝗔𝗵𝗲𝗮𝗱 Taking a step back, this is the third time in recent history that yields spike and cause a freakout – Q3 2022, Q3 2023, and today. And yet each and every time, the portfolio is much higher. Those panicky months are noise, while this is the 𝗦𝗜𝗚𝗡𝗔𝗟: our so-called "interest sensitive" stocks are all near all-time highs. We now need to monitor inflation. A softening and we could rip into year end. Further negative surprises and we will need to take action. Yours, Hugo