INVESTMENT STRATEGY - Lyxor
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2ND QUARTER 2021 INVESTMENT STRATEGY Contact email CrossAssetResearch@Lyxor.com. Slides updated as of April 26, 2021 Important Notice: For investors in the European Economic Area, this material is directed as clients (actual or potential) who meet the definition of a “Professional Counterparty” or “Eligible Counterparty” under the Markets in Financial Instruments Directive (“MiFiD”), and any products or services described which fall within the scope of MiFiD are only available to such clients. This communication is a marketing communication within the meaning of MiFiD. MARKET RESEARCH >> INVESTMENT STRATEGY
Risk-on positioning Ongoing reflation / EPS-driven markets US economic boom w/o sustained inflation upturn but likely to raise inflation fears Europe behind but on the road to normality with growth rebound and muted inflation Tentative exit from deflationary regime, i.e., from >0 Equity to Yield correlation O/W Equities (US EMU JP) Value/Growth through Sectors U/W Govies HY Down to Neutral Bullish tilt on cyclical commodities Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 2
Covid-19 Backdrop MARKET RESEARCH >> INVESTMENT STRATEGY 4
Uneven Covid-19 backdrop Resulting from immunity from previous waves + Vaccination + Mobility restrictions Pandemic may turn endemic as variants multiply but most vaccines seem able to prevent severe symptoms from variants, allowing a return to normality, rather than herd immunity Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 5
… with the latest wave hard to contain in some countries Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 6
Covid-19 vaccination: Eurozone behind US easing mobility restrictions; EMU still constrained Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 7
Vaccination works (IL Pfizer / UK AstraZeneca) UK & SA variants present in IL & UK Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 8
Upward revision to US growth likely to continue Risks in EMU related to vaccination supply & rollout Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 9
Timing the return to pre-Covid GDP level Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 10
US MARKET RESEARCH >> INVESTMENT STRATEGY 11
U.S. looming economic boom Massive fiscal stimulus $5tn Covid-19 rescue + coming $4tn recovery plan Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 12
Inflation: from commodities to wage worries Wage growth capped by labor market slack Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 13
Stay O/W US Breakeven before … Little visibility on 2/3Y inflation outlook What post-Covid normalcy (output gap, nGDP, labor costs …) ? Oversupply will need to be reassessed once the ongoing default wave is over Structural tail risks rising Peace dividend (end of Cold War) over Budgetary discipline vanished with 2009 & Covid-19 crises Monetary unorthodoxy aimed at fostering an inflation revival Free trade & GVC threatened Sentiment now against disinflation Technology downward impact to last Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 14
… the Taper threat Taper impact YTD Changes May-June in bps 2013 US 10YY 65 85 US 10Y Break-Even Inflation 35 -35 US 10YY Term Premium (Fed, Kim-Wright) 48 60 US 10Y Average Implicit Real ST Rate (K&W) -19 60 US 3YY 17 36 US 3Y Break-Even Inflation 70 -40 US 3YY Term Premium (Fed, Kim-Wright) 18 27 US 3Y Average Implicit Real ST Rate (K&W) -71 50 Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 15
Fed committed to AIT framework … but revised up its forecasts Fed to act on actual data not forecasts, not preemptively Tapering well before liftoff Tapering announced late 2021? No liftoff before: labor cond. max. employment Inflation @2% and not transitory Inflation on track to exceed 2% Liftoff in 2023? Current QE $80bn UST + $40bn MBS Fed keeps control of the short end of the curve ; Up pressures on long maturities to continue Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 16
U/W long dated UST: Fed YCC focus on short maturities 12M target @2.25% Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 17
Downgrading US High-yield to Neutral Spread compression well advanced; base risk increasing Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 18
S&P 500 Sales: rebound ahead 2020 sales down -3% in 2020 Model assumptions Nom GDP estimates from CBO DXY stable N12M WTI @ $65 Rebound +8% in 2021 and +6.7% in 2022 Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 19
Strong EPS prospects Bottom-up and Top-down convergence on EPS estimates 2021 > 25% Up risks to 2021 EPS amid upside in economic activity 2022 EPS outlook clouded by Biden’s tax agenda Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 20
Recovery Part I – Infrastructure / Corporate tax outlook American Jobs Plan (outlined on 31 March): ≈$2tn infrastructure (road, bridges, green energy, etc. …Funded by ▲ corporate taxes Made in America Tax Plan: ▲corporate tax rate from 21% to 28% or more likely 25%. (28% top OECD) Quasi-worldwide regime (reduced rate) ▲ Tax on foreign income (minimum tax “Global Intangible Low Taxed Income “ closer to new domestic tax rate => minimum tax ≈20%. Likely acceleration in OECD multilateral negotiations on a Global Minimum Tax to halt the race to the bottom in corporate tax rates. (GILTI at 20% would become US minimum tax) Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 21
US Corporate tax outlook Impact on S&P500 EPS Made in America Tax Plan: negotiations over the summer; bill passed in late Q3 or Q4. Effective Tax reform to take effect in 2022, likely phased-in. Tax Rate Effective Tax rate S&P 500 Weighed Median average 100% 18.6 19.4 Sectors Depending on the reform’s specifics: 31.1 23.2 2.4% Energy 23.0 21.2 2.5% Materials Corporate America effective tax rate ▲+5 pp 20.1 22.1 8.1% Industrials Tax reform could trim 2022 S&P 500 EPS by 3% 19.2 19.0 12.7% Consumer Discretionary to 10% overall, but uneven across companies. Higher domestic rate to hurt stocks with high 26.3 22.0 6.3% Consumer Staples domestic exposure (Fin., Indust., Consumer) 21.8 19.0 11.8% Health Care ▲ minimum tax on foreign earnings to affect IT 20.2 19.5 10.8% Financials and Healthcare. 3.9 1.1 2.3% Real Estate 16.0 14.8 25.6% Information Technology 14.4 20.4 15.2% Communication Services Macrobond, Lyxor AM 18.3 19.9 2.4% Utilities MARKET RESEARCH >> INVESTMENT STRATEGY 22
Recovery Part II – Social / Household tax outlook American Families Plan ≈$1-2tn social spending for low, middle-income, and elderly: ▼ healthcare cost ▲ direct cash assistance (primarily via tax credits) Funded through ▲ taxes on wealthy households Biden’s possible plan (not yet announced) ▲ federal capital gain tax to 39.6% for wealthy households (income>$1M). Combined with current 3.8% tax on net investment income => 43% tax on LT capital gains ▲ top marginal income tax from 37% to 39.6% Congress will likely pass a scaled down version. Tax hike likely to take effect Jan 2022 Mid-point between current tax on LT capital gains & Biden’s plan ≈ 28% Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 23
O/W US Equity Conducive vaccine rollout Massive fiscal stimulus & lasting monetary accommodation EPS growth > +25% with up risks Valuations supported by Fed’s unorthodox policies Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 24
Neutral EURUSD ECB / Fed status quo Macro gap likely to fade IR gap should favor USD but Eurozone reflation to attract flows USD safe-haven feature EURUSD gap to PPP @13% Speculative positions fading Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 25
EUROPE MARKET RESEARCH >> INVESTMENT STRATEGY 26
EMU joining the reflation party Services & Consumer Confidence awakening Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 27
Europe recovery delayed but nearing Consensus: recovery to start in Q2 Sustained mobility restrictions suggest downside risks Yet, potentially huge pent-up demand could be unleashed late Q2 & Q3 (if/when restrictions are eased) Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 28
EMU current lack of fiscal support; stimulus backloaded Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 29
EMU Inflation: upside likely transitory (distorted wages trends) Neutral EMU breakeven Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 30
ECB highly accommodative Rates unchanged in 2021/22 QE= PEPP €1850 bn until Mar 2022 + APP €20bn per month PEPP frontloaded (€bn/month): 71 in Q3 2020 ; 63 in Q4 2020 ; 73.5 in Q1 2021 Current envelope => $75.5bn/M Net-Net supply to switch back to negative territory 3 TLTROs over next 3 quarters March TLTRO attracted € 330bn, above recent ones 4 PELTROs on a quarterly basis during 2021; tenor 1Y; rate 0.25% (liquidity backstop for banks) Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 31
U/W 10Y Bunds Target 3M@ -0.2%; 12M @0% Contagion from UST Bund curve steepening likely to continue Recovery in inflation expectations well- advanced Germany Govies net-net issuance largely negative Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 32
Neutral Peripheral Debt: Yield rise capped by ECB’s QE; ST down risks on macro-outlook; yet, reopening nearing and likely to favor reflation Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 33
IG Credit (N) slightly favored over Bunds & Gilts HY Credit (N): default complacency; high beta continued to outperform Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 34
O/W EMU Equities to leverage global growth 52% EBITDA from overseas (SXXE, FY20) o/w US ≈50%; DY ▲ @3.2% Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 35
EMU sectors: prefer Cyclicals to Defensive Cyclicals: IT, Cons. Disc, Materials, Industrials, Financials, Real Estate Defensives: Cons. Staples, Utilities, Energy, HealthCare, Com. Services ▲Financials (14%) tactical Buy Higher beta to Bund yields Weak credit growth but dividend ban eased; valuation O/W Cons. Discretionary (17%) O/W Materials (7.5%) Rich valuation but significant beta to Bund yield U/W Cons. Staples (8%) U/W Real Estate (2%) Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 36
UK Macro outlook Brexit impact (EC Forecasts – Feb 2021) & BoE Inflation projections 24 Dec 2020 EU & UK Trade & Cooperation Agreement, incl. FTA (0 tariff 0 quotas on goods compliant to rules of origin) TCA => lower drag on growth, concentrated in Q1 2021 Increase in non-tariff barriers (‘NTBs’) equivalent to new tariff of 10.9% for EU imports of 8.5% on UK imports Output loss EU -0.5% by end 22 Output loss UK -2.25% Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 37
Neutral UK Gilts with a bearish MT bias Rapid vaccine rollout suggests a gradual reopening in Q2 BoE to stay put over N2Y even in case of strong & early recovery Consensus Q2 at +4.8% after Q1 @ -3.5% Fiscal support extended until 30/09; capex to be boosted by 2Y super-deduction for capital allowances*: increase in corporate tax rate to start in FY 2023-24 (from 19% to 25%) * Companies can claim 130% capital allowances on qualifying plant and machinery invest. for expenditure incurred from 1 Apr 21 to 31 Mar 23 Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 38
Tactical Buy UK Equities: vaccination / reopening; fiscal support extended until Sept; ▲corporate tax rate (19% to 25%) in FY 23/24; EPS up; dividend yield. Neutral GBPUSD Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 39
JAPAN MARKET RESEARCH >> INVESTMENT STRATEGY 40
Japan: structural pressures but external & domestic upside Large output gap; potential growth=0 Pandemics recent upturn but vaccination started mid-February Further recovery in exports (80% to China, US, Asia). Strength in cyclical services machinery, auto, tech Topix 40% foreign exposure incl. 15/20% in US & China Domestic upside if/when confidence returns and drives consumption Tokyo July Olympics (July 23) without foreign spectators MT positive Suganomics impacts with tech & M&A driven Capex Macrbond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 41
Japan: exposed to US reflation & isolated from US rates Neutral JPY US rate isolation + Reflation benefit: Low Japan rates beta to US rates (BoJ committed to YCC) Would benefit from higher USD BoJ only a tad more hawkish Raised daily LT rate trading range 5bp to 25bp, removed explicit annual ETF QE target (focusing on TPX vs NKY) Marginal improvement in CPI towards 0 JPY: Neutral Little monetary differentials with other DM Weaker JP investors’ rationale to rush into to foreign assets Favorable (U/W) foreign positioning Macrbond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 42
Staying O/W Japan Equity Strong exposure to US reflation Monetary & Fiscal support Lower US-China trade war risks, and solid strategic US-JP alliance Suganomics market friendly policies: (corporate deregulation, restructuring, shareholder reforms) loosely priced-in EPS upside: high operating leverage JP equity under-owned & diversifier Valuation stretched (post 08 crisis) Key themes for Q2: US reflation (rather than Asia recovery) Value & Cyclicals World trade focused industrials (to build up capacities); Chip supply chain replacement (semi & equipment) Macrbond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 43
EMERGING MARKETS MARKET RESEARCH >> INVESTMENT STRATEGY 44
EM Economies: recovery to prevail after Q1 mild soft patch Uneven pandemic trends; overall vaccination slower than DM EM activity resilient; CEE more vulnerable than Asia >0 growth drivers : ample dollar liquidity, global trade acceleration Moderating China: lower stimulus and manufacturing full recovery Erosion in structural EM/DM growth differential (reshoring, protectionism, slow dom. Cons.) Higher political risk than DM [Elections: CHL Apr11, MX Jun6, IR Jun18, TWN Aug28, RU Sep19, CZ Oct8, IQ Oct10, AR Oct24, CHL Nov21] Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 45
EM Economies: Pivotal US Reflation Fundamental EM risks have receded US to attract flows at the expense of EM (FX) Likely to support assets most connected to its supply chain (CH, IN, SK,TWN, Mexico) Upside from green / infrastr. / housing capex CEE upside growth will rather be paced by EU EM lower vulnerabilities to capital outflows. Better overall situation, and the “Fragile 5” are more dispersed and idiosyncratic Investors to focus on improving growth prospects rather than capital flow risk EM likely to better navigate higher US rates & USD volatility (unless related to Fed policy shift) EM risk premium should be average Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 46
EM: Inflation & Pandemics remain key risks / differentiators Inflation remains a key risk to monitor though: Inflation surprises are intensifying, mainly due to commodity prices, but unevenly EM countries where Core CPI is rising look more at risk Will likely prompt a selection of central banks to tighten (TK +200bps, BZ, RU, delayed MX cut?) Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 47
EM Equities: Tactical Buy post correction Technical, Positioning & Valuations cleaned. 5-10% upside potential Brighter EM backdrop, receding macro risks lift a hurdle for equities EM rate hikes (+120bps priced for N12M) US reflation net positive for EM EM assets should navigate higher US rates Key movers and differentiators: Pandemics trends Sensitivity to higher inflation, to commodity prices, to US reflation Rotation towards laggard likely to continue, with volatility until US rates stabilize Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 48
EM Equities – Tactical Buy China & Neutral- Brazil Tactical Buy China Recovery moderating and skewed towards manufacturing, with eroding stimulus US trade war: less tariffs, more multilateral pressure & non-tariff barriers Steep correction cleaned up excess valuation; ST catch up (+5%?) likely Neutral- Brazil amid Covid-19 spread Widespread pandemic A longer soft patch is probable, while stimulus package got delayed Inflation passes through to core CPI, prompting central bank to tighten. Bolsonaro’s eroding political support could limit reforms Upside from low abs & relative valuation Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 49
EM Equities – O/W India & Neutral- Russia O/W India: macro upside past Covid Pandemics worsening anew Reforms validated, boosting sentiment, but implementation will be key Elevated inflation to cap stimulus leeway US reflation and supply chain diversification favors India Downside risk from high valuation Neutral- Russia: capped recovery Rising Core CPI => tighter monetary policy Oil activity to gain traction, but elsewhere still sluggish demand and little budget stimulus (+0.5/+1% of GDP boost?) Western sanctions risk remain live Upside risk from oil prices and Valuation Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 50
EM HC Debt – Neutral overall amid US rate risk Favor active managers to play dispersion Reasonably isolated from US rates, but less than equities: EM HC Debt in line with DM (YTD) Non-panic factoring of UST/$ trends High corr.to UST/$ suggest higher volatility LATAM & EMEA ~ 2/3 EM debt Modest & uneven spread tightening Valuation close to fair; possible compression (~20bps in BZ, RU, INDO, PH) Issuance seasonally strong, flows paused No pending major default (ex Arg) Still provides credit diversification Higher yielder look more sheltered, provided risk aversion stays stable Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 51
COMMODITIES MARKET RESEARCH >> INVESTMENT STRATEGY 52
Commodities: uneven sensitivity to US rates Drag from higher rates volatility likely transitory (unless Fed shifts policy) Cyclical commodities typically tend to navigate higher rates More challenging for Gold MARKET RESEARCH >> INVESTMENT STRATEGY 53
O/W Copper amid strong macro tailwinds Expecting a spike at $10000/t Conducive macro backdrop Better growth, US reflation, rebound in construction (esp. in the US) and auto Inflation hedging; Market liquidity Copper in shortage in 2021 China demand to be relayed by RoW Structural trends in electronics, EV, decarbonization remain intact Supply (Chili, Peru, China; US …) to resume slowly; new projects for 2022 Global inventories already tight Prices could breach new highs Signs of shortage stress: backwardation, dispersion across regional markets Stretched long positions would last Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 54
Tact. Buy Oil: tight supply favors higher prices 12M Target $75 Geopolitics becoming oil adverse (thaw in Iran-US relations) Large pent-up demand at time of high seasonal demand (transport, A/C etc.) Macro tailwind: Reflation, Infrastructure spending, Inflation hedging Technical factors to amplify ST spikes (backwardation, liquidity) Possible spike at $75 amid US reflation Cooler prices in H2 as OPEC+ ramp up output (spare capacities > 6.5mbd) Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 55
Neutral+ Gold: mixed fundamentals, tactically driven 12M Target $1800 per ounce Mixed macro backdrop (+) Alternative to cash (neg. yield debt ~20%) supportive but less so (+) Physical mkt improvement (jewelry, electronics), partially offset by ▲ output (-) Lower tail risk from vaccine & ongoing recovery (though uneven) (=/+?) Stimulus sustainably inflationary? (=/-) rangy USD, ST positive tilt Flow rotation could shift gold features ETF flows less active than in 2020 Physical and CBs (which trashed gold in H2 20) could both be more decisive Correlation to real yield & USD could intensify as rate volatility surges Macrobond, Lyxor AM Healthier technicals MARKET RESEARCH >> INVESTMENT STRATEGY 56
Agenda Apr 27: BoJ meeting with outlook Apr 28: FOMC Apr 30: European National Recovery & Resilience plans to be submitted May 6: BoE meeting with inflation report May 6: Scotland general elections Jun 10: ECB with projections Jun 16: FOMC with projections Sept 26: German federal election Before Oct 22: Japan parliamentary election MARKET RESEARCH >> INVESTMENT STRATEGY 57
Our 3M Views MARKET RESEARCH >> INVESTMENT STRATEGY 58
APPENDIX MARKET RESEARCH >> INVESTMENT STRATEGY 59
US ST headline inflation indicators ticking up Macrobond Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 60
US Budget reconciliation Budget process 1. President submit a budget request to Congress Reconciliation => only a simple majority needed in Senate (and not the 2. Congress passes its own budget standard 60 votes) and no need of resolution (that must be voted by both getting rid of the Senate filibuster House & Senate) (obstruction to prevent a measure from The Resolution does not include specific being brought to a vote in the Senate policy changes) but can contain by endlessly speaking on a subject) Reconciliation instructions Democrats can use 2 Budget allow for a budget-related bill to pass with simple majorities in House & Senate Resolutions (FY21 and FY22) since no budget resolution was passed for FY21 Committees can be ordered to reduce or increase deficit, spending or revenues 2/3 Reconciliation bills likely: on Covid Resolution can split into 3 reconciliation stimulus if a bipartisan deal fails ; on bills (spending + revenues +debt limit) Biden’s core economic agenda ; and Reconciliation drawbacks: restrictions to possibly on debt limit expansion likely prohibit minimum wage increase and other Biden’s pro-union labor agenda MARKET RESEARCH >> INVESTMENT STRATEGY 61
SPX record concentration AAPL, MSFT, GOOGL, AMZN, FB, BRK/B, JNJ, JPM, XOM Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 62
Signs of froth, limited overall threat for now Short squeeze on GME when shorts > 100% float, a rare occurrence Little transitory impact on financial stability No change in monetary & fiscal support Likely regulation to address the gamification of retail investing Multiple signs of frothiness non profitable companies trading at extreme price to sales (Tesla, Airbnb …) Equity supply from young unprofitable companies to surge to >20% of their current market cap Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 63
Sector Performance & Valuation Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 64
Value vs. Growth through sector recommendations Media = Facebook+Google+Netflix+Twitter ; Retailing = Amazon S&P 500 Pure Growth Pure Value Industry Groups Energy 0.0% 11.4% Materials 0.3% 1.8% Capital Goods 0.2% 5.7% Commercial & Professional Serv 0.5% 0.0% Transportation 0.2% 0.0% Automobiles & Components 4.2% 2.4% Consumer Durables & Apparel 0.0% 1.2% Consumer Services 0.4% 0.0% Retailing 11.9% 0.9% Food & Staples Retailing 0.0% 4.3% Food, Beverage & Tobacco 0.3% 1.9% Household & Personal Products 0.0% 0.0% Health Care Equipment & Servic 1.5% 6.8% Pharmaceuticals, Biotechnology 2.9% 0.4% Banks 0.2% 25.7% Diversified Financials 1.1% 17.3% Insurance 0.0% 7.1% Real Estate 0.0% 0.7% Software & Services 23.2% 0.1% Technology Hardware & Equipmen 15.1% 1.6% Semiconductors & Semiconductor 7.2% 0.0% Telecommunication Services 0.0% 4.0% Media & Entertainment 30.8% 4.1% Utilities 0.0% 2.7% Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 65
O/W S&P500 Banks amid cyclicality & steeper yield curve Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 66
O/W S&P500 Healthcare Equipment & Services Support from Covid-19 crisis & Biden’s policy agenda Earnings upside beyond the current +9% expected in 2021 Valuation not cheap Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 67
O/W S&P500 Utilities To be supported by green capex Dividend yield @3.25% Attractive valuation Little downside risks A contrarian play in early cycles Vulnerable to rising rates & inflation Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 68
US Small versus Large: downgraded to Neutral late February after an eye-catching relative rally Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 69
EM Equities: China concentration & froth Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 70
Bitcoin: not yet the “digital gold” Volatility: recent 20% correction, possibly originated in Asia Distrust: “(Bitcoin) is a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity” ECB President Lagarde, 13 Jan 2021 Risk that regulatory regime could turn more unfriendly (Turkey banned cryptos for payment) Stable and limited issuance that cannot be devalued by Central Banks Greater acceptance as a store of value (Robert Kaplan, President of Dallas Fed) and an investment option (Lo BI, PBoC deputy governor) Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 71
Bitcoin: not yet the “digital gold” Highly volatile and still >0 correlated to risk assets Macrobond, Lyxor AM MARKET RESEARCH >> INVESTMENT STRATEGY 72
CONTACT DETAILS Jeanne Jean-Baptiste Philippe Asseraf-Bitton Berthon Ferreira Head of Market Research Senior Strategist Senior Strategist jeanne.asseraf-bitton@lyxor.com jb.berthon@lyxor.com philippe.ferreira@lyxor.com Eloise Girard-Desbois Intern eloise.girard-desbois@lyxor.com MARKET RESEARCH >> INVESTMENT STRATEGY 73
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DISCLAIMER (2/2) This presentation contains the views of Lyxor AM analysts and/or strategies. The views espoused in this presentation may differ from opinions and recommendations produced by other departments of SG. Note about Indices: Indices are not available for direct investment. A comparison to an index is not meant to imply that an investment in a fund is comparable to an investment in the funds or securities represented by such index. A fund is actively managed while an index is a passive index of securities. Indices are not investable themselves, and thus do not include the deduction of fees and other expenses associated with an investment in a fund. Not all the funds that comprise indices cited herein are suitable for US Investors as a result of, among other things, the implementation of the Volcker Rule. Please see the offering documentation for these funds for more details. Notice to U.S Investors: Any potential investment in any securities or financial instruments, the categories of which are described herein, may not be suitable for all investors. Any prospective investment will require you to represent that you are an “accredited investor,” as defined in Regulation D under the Securities Act of 1933, as amended, and a “qualified purchaser,” as defined in Section 2(a)(51) of the Investment Company Act of 1940, as amended (the “40 Act”). The securities and financial instruments described herein may not be available in all jurisdictions. Investments in or linked to hedge funds are highly speculative and may be adversely affected by the unregulated nature of hedge funds and the use of trading strategies and techniques that are typically prohibited for funds registered under the ’40 Act. Also, hedge funds are typically less transparent in terms of information and pricing and have much higher fees than registered funds. Investors in hedge funds may not be afforded the same protections as investors in funds registered under the ’40 Act including limitations on fees, controls over investment policies and reporting requirements. Notice to Canadian Investors: Any potential investment in any securities or financial instruments, the categories of which are described herein, may not be suitable for all investors. Any prospective investment will require you to represent that you are a “permitted client,” as defined in Canadian Regulation National Instrument 31-103, and an “accredited investor,” as defined in National Instrument 45-106. The securities and financial instruments described herein may not be available in all jurisdictions of Canada. For more information, US and Canadian investors and recipients should contact Lyxor Asset Management Inc., 1251 Sixth Avenue, New York, NY 10020 or invest@lyxor.com. Notice to U.K. Investors: This communication is issued in the UK by Lyxor Asset Management UK LLP, which is authorised and regulated by the Financial Conduct Authority in the UK under Registration Number 435658. Source: This document has been prepared by Lyxor Asset Management S.A.S., 17 cours Valmy, 92800 Puteaux. Lyxor AM is a French management company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2014/91/UE) and AIFM (2011/61/EU) Directives. Lyxor AM is also registered with the US Commodity Futures Trading Commission as a registered commodity pool operator and a commodity trading advisor. MARKET RESEARCH >> INVESTMENT STRATEGY 75
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