BL Global Flexible EUR is a flexible asset allocation fund that aims to generate an attractive return over the medium term.
The Fund invests in asset classes that are often inversely correlated, each having a specific role to play in the portfolio depending on the market context:
- Equities are the main long-term driver of returns;
- Bonds: A factor of stability during periods of turbulence on the stock markets;
- Gold (via gold-mining stocks): Protection against macro/geopolitical/systemic risks;
- Cash serves as a reserve to invest when opportunities arise.
Finally, BL Global Flexible EUR is a fund classified as Article 8 according to the SFDR regulation. It integrates ESG factors into different stages of its investment process and is committed to investing a minimum of 20% of its assets in assets that are considered sustainable (according to BLI's internal methodology).
The Fund also benefits from the “Label ISR” (France) attesting to the solidity of the SRI approach implemented.
Note: 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 August 2023.
|Since 31/12/2022||3 months||1 year||3 years||5 years||10 years|
|Lipper Global Mixed Asset EUR Balanced||4,6%||1,3%||1,3%||4,2%||6,3%||27,8%|
Although in the first half of the year, despite its defensive positioning, the fund managed to keep up with the market; the situation worsened since the end of April.
This poor performance can be explained essentially by the rise in bond rates since the beginning of May. While the US 10 year yield fell between October 2022 and the end of April, it has since risen some 100 basis points from 3.3% to 4.3% around 20 August, its highest level since late 2007.
This rise in long rates has affected the Fund in two ways:
1) Directly on the bond allocation, given the high yield sensitivity of the bonds held in the portfolio
2) Indirectly on equity holdings and investments in gold securities. In fact, defensive sectors offering good visibility in terms of results are generally more sensitive to rising rates and, unfortunately, they have not derogated from this rule this time; even if in practice, with healthy balance sheets and business models that are not sensitive to an economic slowdown, they should not be hard hit by this new rise in rates. Gold securities, for their part, were penalized in sympathy with the price of gold, as the rise in rates without any increase in inflation expectations was interpreted as a rise in real rates.
In addition to this impact of long rates on the portfolio, it is important to stress that equity markets have been pulled since the beginning of the year, despite fears of a recession, by the theme of artificial intelligence; thus there is a great disparity of performance between some major technological securities posting significant increases and the rest of the stock market.
The decline in the fund is therefore not related to accidents in the portfolio or particularly bad results announced by the companies held. On the contrary, the results announced were generally good, with companies in the consumer staples sector demonstrating in particular their ability to increase their prices.
As at 31 August 2023, the fund's asset allocation was as follows
- Gross exposure 74.56%
- Net exposure: 59.03%
- fixed income 10.50%
- Gold stocks 13.81%
- Cash 1.13%
The equity portion is partially hedged, but the hedge has changed shape. Rather than sell futures, we now opt to buy Put options. These options are currently cheap and have the dual advantage of allowing the fund to benefit if markets continue to rise and avoiding being short on sectors like banks or energy. It may be argued that even with a coverage around 15%, the equity percentage remains relatively high, but it should be remembered that stocks in the portfolio are often defensive or have already undergone significant corrections.
At regional level, Asia is still heavily represented with a weighting of over 40% (Japan 24.8%, Asia ex Japan 17%). It should be noted that this high exposure to Asia did not penalise the fund over the period under review, as Japanese equities even made a positive contribution to performance.
The gold portion continues to fluctuate between 12% and 15% as the price of the gold companies owned. We continue to believe that the long term trend for Gold remains bullish.
Overall, the fund's positioning remains defensive. While the market seems increasingly believing in a soft landing or even a reacceleration of the US economy, the story is different. The latest economic figures show that the weakness of the manufacturing sector is starting to spread to the services sector, which so far has been particularly resilient. In the Eurozone, the service purchasing managers' index fell below 50 in August to separate expansion and contraction. In the United States, it is still above 50 today, but has risen from 55 in May to 51 in August.
So while our working hypothesis remains one of a marked slowdown in the global economy, it is interesting to ask what would be the consequences of both alternatives, a soft landing or a reacceleration of growth. In both cases, the conclusion would be that pundits, starting with the Federal Reserve itself, would have ended up misestimating the level of the neutral Fed funds rate (the neutral rate does not hinder or fuel growth). Indeed, if the US economy were to succeed in a soft landing or even start to reaccelerate despite a rise of more than 500 basis points in the Federal Reserve's key rate, this would mean that the neutral rate would be closer to 2.5% to 3% (in real terms) than the 1% that the Federal Reserve models currently seem to indicate. Adding an inflation rate of about 2% to 3% would give a neutral nominal rate of around 5%.
As a result, the potential for rate cuts in principle would be limited in the event of a soft landing, while rates should continue to rise if the economy reaccelerates. In the first scenario, however, the fund should be able to do well, while the reacceleration scenario could be negative (at least initially) for equities, bonds and gold. Having said that, a reacceleration of the economy at a time when leading indicators remain in sharp decline would never be seen.