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The conditions on the capital markets have changed dramatically in the past five years. Time, therefore, to adjust the investment criteria of the YOU INVEST funds on the basis of an improved risk/return profile. The recent re-positioning is aimed at the sustainable increase in portfolio return in an environment of extremely low interest rates and low inflation.

What’s new? 

• No minimum quota for investment grade government bonds
• Given a neutral market assessment, the equity portion is now higher
• The portion of alternative investments remains at 10%
• Additional asset classes such as convertible bonds and commodities (gold, industrial metals etc.) are now also part of the YOU INVEST funds

Trust in stable economy and positive earnings development

The positive development on the equity markets since the end of December 2018 continued in April and lasted until mid-May. Company results and the prospect of a stable economy were the main drivers, complemented by the fact that the US central bank had been restrained in its interest rate moves and deliberations. The important S&P 500 and Nasdaq Composite indices set new highs in April. The economic data in China were also supportive. Higher inflation is not an issue on either side of the Atlantic.

Risks to be aware of

The trade conflict between the USA and China is still the Sword of Damocles to the stock exchanges. The latent risk of the breakdown of negotiations turned into a dominant one in the wake of a new tweet from President Trump at the beginning of May. Both sides have threatened the introduction of new tariffs or the increase of existing ones.

Dynamic structuring of YOU INVEST portfolios has paid off in 2019

Supported by the USA, almost all regions and sectors have been positive in 2019: technology shares have been at the top yet again. The dynamic structuring of YOU INVEST portfolios has paid off in 2019. All funds have delivered a positive performance in the year to date, having recorded set-backs in 2018. At the beginning of May, we slightly stepped up the portion of shares and global emerging markets bonds at the expense of bonds from Eastern Europe and money market instruments.

Disclaimer:

Forecasts are no reliable indicator for future developments.

https://en.youinvest.at/home/legal-note.html

Warning notices in accordance with the Austrian Investment Fund Act:

The funds of the YOU INVEST range may invest significant parts of their assets under management in the shares of investment funds (UCITs, UCIs) as laid down in sect. 71 of the Austrian Investment Fund Act of 2011.

Since this is a blog, we do not update the data and facts of the respective entries. They are in line with our knowledge at the time of going to press. For the current data and facts in connection with funds, please refer to the information in the section “Reporting”.

Frequentis was the second Austrian company this year to make its initial public offering (IPO) on the Vienna Stock Exchange last week. The number of IPOs by international companies for this year has been on the smaller side, with biotech company Marinomed’s IPO at the start of February being the first one in European for 2019.

According to a survey by consulting firm EY, the worldwide Q1 issue volume lay nearly 75 per cent below the figure for the same period of the previous year. One reason for this, aside from a certain aversion to risk, is that IPOs also failed due to uncommon factors: the longest government shutdown in the USA’s history, for instance, delayed the approval of IPOs.

IPOs picking up speed in Q2

However, the general conditions for IPOs improved as the first quarter progressed. Recently, big names also launched their offerings at the stock markets, raising the expectations for further IPOs.

Prominent jeans manufacturer Levi’s managed to make a spectacular comeback on Wall Street in March: on the first day of trading, the long-established company’s share prices rose by almost a third after Levi’s had been absent from the trading floor for 34 years. The US urban mobility service Lyft also caused a sensation, launching its offering at the end of March with a valuation of USD24bn on New York’s Nasdaq technology exchange. This was followed in May by the much-anticipated launch of industry leader Uber on the stock exchange, which reached a total valuation of USD73bn.

In Europe, the largest IPO to date took place in Milan, where payment processor Nexi launched its offering mid-April with a valuation of 7.3 billion euros. In Switzerland, Novartis’ medical technology subsidiary Alcon’s stock market launch caused a major stir with almost EUR25bn of market capitalization. However, its shares were not publicly offered but were issued exclusively to Novartis shareholders.

Various new listings down the road

In Germany, prominent new entrants in individual stocks are on the horizon. The Volkswagen Group is now planning to list the Traton truck division on the stock exchange this year after all. With the approval of the supervisory board, the board of directors decided to aim for an IPO before the 2019 summer break, subject to further capital market developments, the company announced after a supervisory board meeting in the previous week.

Similarly, the Thysenkrupp steelworks and technology company is planning a partial IPO of its lucrative elevator division after a strategic realignment.

Meanwhile, the Vienna Stock Exchange’s new midmarket segment has aroused the interest of oekostrom AG. The Austrian company intends to set the course for another IPO in Vienna at its annual general meeting in June.

Legal note:
Prognoses are no reliable indicator for future performance.

In the US stock markets, earnings season reached its peak in the previous week. A number of major players have already published their results for Q1. In the run-up, disappointing quarterly results with profit declines had been feared; however, most of these proved to be unfounded, and, in fact, numerous companies even exceeded analysts’ expectations. In New York, the S&P 500 and the Nasdaq Composite responded with new highs both during the day and at close.

Pleasant surprises in various industries

By the middle of the week, 129 companies had already presented their results. According to news agency Reuters quoting data from financial data provider Refinitiv, more than 75 per cent exceeded expectations, including, among others, the operators of the social networks Twitter and Facebook as well as toy group Hasbro. Technology corporation United Technologies and arms manufacturer Lockheed Martin also pleased investors with positive figures and have already raised their profit expectations for the whole year. Established IT company Microsoft attracted attention in particular with its figures for the first quarter of the year: owing to its flourishing cloud service business, Microsoft increased its revenue in the first three months of 2019 by 14 per cent to USD30.57bn, with profit increasing by 19 per cent to around USD8.8bn. In this manner, positive surprises in the quarterly figures were found across various industries and sectors.

Good reasons for disappointing figures

Analysts noted that, considering the positive environment the current results create, disappointing figures would weigh more heavily. However, specific reasons rather than general economic concern caused some companies to fall short of expectations – Boeing being one of those. For the time being, the aircraft manufacturer retracted all forecasts for the year as a whole, mainly because of the uncertainty caused by the launch bans on its 737-Max models following two crashes. Construction machinery giant Caterpillar was unable to present convincing revenue figures, in this case, the company reported, because of weak sales in Asia and the Pacific. However, the construction machinery group may be able to look forward to positive developments in the trade dispute and a subsequent pick-up of sales.

Expectations for stock market before possible trading agreement

Since the markets’ heavy index losses in the final quarter of the previous year, negotiations between the USA and China have made significant progress. For many investors, an agreement in the trade conflict seems only a matter of time and is regarded as the next important milestone for the stock markets. Furthermore, the Federal Reserve’s restraint in the current year has had a positive effect on the stock market, and, finally, analysts’ profit expectations have improved significantly since the beginning of April and as earnings season gained momentum.

Legal note:
Prognoses are no reliable indicator for future performance.

After the brilliant recovery of the global stock markets in January with a positive performance of over 7 percent, the positive trend continued in February, albeit at a slower pace. On average, about 3 per cent was earned on the stock markets. The continued defensive stance of bond investors remains interesting. The yield on 10-year German government bonds has reached a level of only 0.04 percent following the ECB's announced support measures (source: Thomson Reuters Datastream, 21.03.2019).

Flat yield curve in the USA

The steepness of the yield curve, which is the difference in yields between 2-year and 10-year bonds, has also received a great deal of attention and has moved very little in the USA, for example. The yield curve remains rather flat, indicating a rather moderate economic development with low inflation. Fears of central bank interest rate hikes have completely disappeared. In the USA, market participants would not even be surprised to see interest rates cut in the second half of the year.

Equity allocation in YOU INVEST funds reduced slightly

Against this background, we have decided to reduce the equity quota in the YOU INVEST funds to about 70 percent (from 80 percent) of the maximum possible quotas. In the bond segment, the proportion of European corporate bonds in the lower high-yield rating segment was reduced. We are therefore still overweight in equities and especially in emerging market bonds, but not as strongly as in recent months.

Disclaimer:

Forecasts are no reliable indicator for future developments.

https://en.youinvest.at/home/legal-note.html

Warning notices in accordance with the Austrian Investment Fund Act:

The funds of the YOU INVEST range may invest significant parts of their assets under management in the shares of investment funds (UCITs, UCIs) as laid down in sect. 71 of the Austrian Investment Fund Act of 2011.

Since this is a blog, we do not update the data and facts of the respective entries. They are in line with our knowledge at the time of going to press. For the current data and facts in connection with funds, please refer to the information in the section “Reporting”.

Early last week, hopes for a timely solution to the trade conflict between the US and China soared: “substantial progress” in the recent negotiations caused US President Donald Trump to postpone a deadline for additional tariffs on imports from China. As is his wont, Trump announced this on Twitter. Without any agreement, punitive duties on Chinese goods could have been raised or new tariffs introduced from 1 March. However, this case seems to be averted for the time being.

US economic growth fell in Q4

Current economic data shows a mixed picture for the impact of the trade dispute on the US economy so far. While the GDP grew by 2.9 percent in 2018 overall – the strongest growth in three years – the growth lost momentum in Q4 (Source: U.S. Department of Commerce, 28 February 2019). The Department of Commerce in Washington announced on Thursday that annualised US economic growth fell to 2.6 per cent between October and December, from 4.1 per cent in Q2. The OECD’s calculation method, which compares a quarterly result with that of the previous year, yielded 3.0 per cent growth in Q3, compared with 2.9 per cent in Q2.

Chinese economy extremely weak

However, according to official data, Chinese economic growth has suffered an even more serious setback, falling to 6.4 per cent in Q4 – this is the lowest rate in 28 years, never mind the 2008 financial crisis (Source: National Bureau of Statistics of China, 21 January 2019).

The extent to which the world's two largest economies would suffer as a result of a more intense trade war is one of the subjects of a recent study by Munich-based Ifo Institute  (Source: „Trump’s trade attack on China – who laughs last?“, EconPol Policy Brief 13, February 2019). In the study, conducted as part of the EconPol Europe research network, Gabriel Felbermayr and Marina Steininger investigated the impact, the two superpowers’ threats of a 25 per cent surcharge on all goods would have: “China would lose much more than the USA in absolute and relative terms,” the Ifo researchers conclude. US economic output would fall by 9.5 billion euros, China’s by as much as 30.4 billion euros.

Even without new tariffs the US Congressional Budget Office (CBO) foresees a definite negative impact: on average, the GDP will be 0.1 per cent lower over the next ten years if tariffs remain at the current level, according to a CBO report published at the end of January (Source: „The Budget and Economic Outlook: 2019 to 2029“, 28 January 2019).

Customs dispute causing an emotional roller coaster ride

Just how fervently market players are hoping for a resolution of the dispute was evidenced by the reactions of the stock markets to Trump’s confident news last Monday. The Shanghai Composite, the leading index for the Chinese mainland stock exchange, jumped a whopping 5.60 per cent after Trumps tweet. Wall Street, reacting likewise to the relaxation between the US and China, closed with some satisfying consolidation.

However, hopes did not last even a week: On the day the first estimate of US GDP growth in Q4 2018 was published, Trump left Hanoi early and without reaching the much anticipated agreement in the disarmament negotiations with North Korean ruler Kim Jong-un. Still in Vietnam, The US President put a damper on hopes of an end to new punitive tariffs by announcing that he would also break off the negotiations with China.

Legal note:
Prognoses are no reliable indicator for future performance.