1st quarter 2023
Economic and financial environment
The global economy showed resilience in the first quarter, with service activities in particular continuing to benefit from robust demand. Growth concerns returned to the forefront towards the end of the quarter, following the release of weak economic indicators in the US and tensions in the banking sector. In the coming months, these concerns are likely to intensify due to the impact of monetary tightening by central banks and the increasing reluctance of banks to extend credit.
Inflation rates continued to ease during the quarter. In the United States, the inflation rate fell from 6.5% in December to 5% in March. Excluding energy and food, however, inflation was tenacious, falling only from 5.7% to 5.6%. Central banks continued their monetary tightening, with the Federal Reserve and the European Central Bank raising their key rates by 50 and 100 basis points respectively in two steps.
- Financial markets:
After their decline in 2022, the financial markets rebounded in the first quarter. The month of January was particularly strong. Falling inflation suggested that central bank monetary tightening would soon end, while persistent signs of resilient economic activity fueled expectations of a soft landing for the global economy. February was more difficult, due to less favorable inflation figures, reflecting in particular the tenacity of core inflation (excluding energy and food). March was then marked by tensions in the banking sector. While these tensions weighed heavily on bank stocks and led to a slight decline in the European market, they did not prevent the global equity index from continuing to rise, helped by the decline in bond rates. For the first quarter as a whole, the European markets were the best performers, while the Asian markets lagged somewhat.
Within the stock markets, the decrease in investor risk aversion and the decline in bond yields particularly benefited growth stocks, especially technology stocks. At the other end of the spectrum, sectors generally associated with the value style were neglected. The fall in oil prices weighed on the energy sector, the collapse of Silicon Valley Bank in the United States and the takeover of Credit Suisse in Europe on the financial sector, and growing concerns about US growth on the basic materials sector. The MSCI World Growth Index outperformed the MSCI World Value Index by 13% in the first quarter, after underperforming by nearly 25% last year.
Recent positioning and movements
The allocation between the major asset classes did not change significantly during the quarter for both BL Global 30 and BL Global 50.
With the advent of a recession being the most likely scenario, capital preservation remains the primary objective, which explains the defensive positioning of the two portfolios with a significant allocation to precious metals (ultimate safe haven) and the hedging of part of the equity risk exposure through futures on European and US indices.
The transactions carried out during the quarter remained concentrated in the equity bucket and were similar for both strategies:
Only one holding joined the BL Global 30 and BL Global 50 during the quarter, the pharmaceutical company Bristol Myers Squibb, which, thanks to the acquisition of biotechnology company Celgene in 2019, looks well positioned to accelerate the introduction of promising drugs in the coming years.
The Fund Manager closed the fund's stake in US cosmetics business Estée Lauder in January on valuation grounds, as the company rebounded strongly following the reopening of the Chinese market.
During February, the Fund Manager sold a number of positions in order to focus the portfolio on high quality stocks amid concerns over the resilience of the global economy, thus LG H&H - a Korean conglomerate, Teleperformance - a French company specialising in the moderation of internet content, and Alibaba exited the portfolio.
It should be noted that following the sale of Alibaba, the portfolios of BL Global 30 and BL Global 50 no longer have any exposure to Chinese stocks. The manager is taking a prudent approach in the face of rising Sino-American tensions and possible Chinese support for the Russians in the Ukraine war that could lead to international sanctions against China.
During the month, small positions in US and Japanese tool companies Stanley Black + Decker and Makita were completely sold on following a post-covid demand downturn
PerformanceNote : Performance data net of fees (share class B) in EUR. Past performance is not a guide to future performance. References to a market index or peer group are made for comparison purposes only; the market index is not mentioned in the investment policy of the sub fund.
Source: BLI/Lipper. Data as of 31 March 2022.
The good performance of the two portfolios during the quarter compared to their respective peer group is mainly explained by their performance in March in a context of fears about the solidity of the banking sector (+2.4% for BL Global 30 vs. +1.6% for the peer group average and +3% for BL Global 50 vs. 0% for the peer group average).
In January and February, the more defensive profile of the two portfolios proved to be detrimental while the Global stock markets were on the rise. In contrast, the more conservative positioning of the portfolios in March, particularly the absence of banks and the large exposure to precious metals were beneficial to relative performance.
However, for the full quarter, both the partial hedging of the equity risk and the exposure to precious metals weighed on performance.
The largest individual contributors to quarterly performance vary slightly depending on the portfolio considered:
- BL Global 30: Positive contribution of stocks such as Air Liquide, LVMH, Novo Nordisk, Legrand and TSMC while defensive stocks in the pharmaceutical sector such as Roche, Novartis and Johnson & Johnson weighed on the relative performance of the portfolio.
- BL Global 50: Positive contribution from stocks such as Air Liquide, LVMH and Novo Nordisk while precious metals ETC positions contributed negatively, as did defensive names in pharma sectors such as Roche, Novartis and Johnson & Johnson.