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The YOU-INVEST-funds remains ambitiously positioned in the equity and corporate bond markets. The economy has been going very well, particularly in the Eurozone, and company earnings have followed suit by growing noticeably. This supports the equity markets, even though by traditional valuation criteria such as price/earnings they are not cheap anymore. History shows that in a positive economic environment and amid rising company earnings, the probability of a drastic setback of share prices is low.

A potential factor triggering corrections in such a scenario are often the central banks, which have to start raising their key-lending rates more significantly so as to prevent inflation risks from materialising. At the moment, the central banks are trying to achieve a higher inflation target, and in view of the positive economic environment, the monetary policy can still be seen as expansive, despite the interest rate hikes already implemented by the US central bank and the reduction or termination of the bond purchase programme of Eurozone bonds by the ECB.

In our funds, we remain positive with regard to equities and especially US corporate bonds (with a resulting strong weighting in said asset classes). The most recent upswing of euro government bond yields and the price declines it entailed have almost not affected us at all. We will maintain this positioning, and for now we also intend to keep hedging the majority of our assets denominated in foreign currency relative to the euro, which has safeguarded us against possible negative effects of the US dollar weakness. 

The strategy of our YOU INVEST funds remains relatively aggressive. At about 85%, the equity weighting is at the upper limit of its bandwidth. Other than that, we also continue to be favourably disposed towards high-yield bonds (i.e. bonds with low rating). Emerging markets bonds also command a preferential weighting. The allocation into government bonds remains zero to very moderate.

Economic upswing

Why are we pursuing this ambitious strategy? All big economic areas have embarked on a more or less pronounced economic upswing, with the Eurozone leading the pack. Given the still low inflation rates, the central banks have enough leeway to increase their rates only very cautiously.

US Fed funds rate hike within the realm of expectations

Last week the US central bank increased the Fed funds rate as expected by a quarter of a percentage point, with the new bandwidth set at 1.0 to 1.25%. In the Eurozone, the bond purchase programme by the European Central Bank may be tapered from the beginning of 2018.

Company earnings growth has become more dynamic. Given that the valuations have already come a long way, this is a good sign.

US dollar depreciating vis-à-vis the euro

The euro has been relatively strong in 2017 to date, while the US dollar has lost about 7.5%. Our foreign exchange strategy of mainly hedging the US dollar has paid off and will be continued for the time being.

Forecasts are no reliable indicator for future developments.

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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”.

The high on the global capital markets has continued to grow now that the political uncertainty in France is over. European stocks in particular continued their positive development. US stocks, which have generally performed better than European instruments in recent months, are also in the positive range, though behind the eurozone markets.

Positive economic developments are driving the good mood on the stock exchanges. These developments are fairly well synchronised and are picking up speed in the eurozone in particular. The pro-business measures planned in the USA appear to have a good chance of actually being implemented. This would primarily be of benefit to corporate profits in the USA.

The higher returns on government bonds in the eurozone are the only negative aspect of these developments. These higher returns have been accompanied by corresponding falls in prices. The asset classes of corporate bonds and bonds from emerging nations have, however, been able to avoid this trend.

In the YOU INVEST Fund we have been able to benefit from the good performance of the stock markets, corporate bonds and emerging markets. The negative developments in government bonds have had only a peripheral impact.

The proportion of stocks has increased slightly over the past few days and is now at around 85% of maximum possible weighting levels. By contrast, corporate bonds in the lower rating segments in Europe have been reduced. These had previously performed very well. Government bonds in emerging nations were also reduced in favour of corporate bonds in these countries. The risk of higher returns in the USA could also be a negative factor for government bonds from emerging nations.

Forecasts are no reliable indicator for future developments.

https://de.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”.

The elections are over. The next President of France will be Emmanuel Macron. This strengthens the camp of the liberal EU supporters. What does this result mean for the capital markets?

The elections in France took place against the backdrop of a cyclical upswing in the Eurozone. Experts expect economic growth of 2.1% for 2017 after 1.7% last year. In France, too, numerous economic indicators suggest an acceleration of real economic growth. However, France continues to grapple with its structural problems, f.e. the unemployment rate (10%). The next hurdle Macron has to clear are the parliamentary elections in France on 11 and 18 June. It is questionable whether Macron’s new movement can achieve a majority.

The combination of good economic indicators, a decrease in concerns over a possible break-up of the European Union, and hopes for reforms in France and the EU is positive for risky assets such as equities.

Forecasts are no reliable indicator for future developments.

https://de.youinvest.at/home/legal_note.html

Economic growth in the Eurozone has embarked on a clear upward trend. At the same time, the fear of falling wages and prices has disappeared for now. The worries over a possible break-up of the European Union have also eased. Against this backdrop, the ECB President Draghi issued a slightly more optimistic growth forecast yet again on 27 April at the press conference of the European Central Bank. This is another tiny step indicating a possible reduction of the monetary support in the medium term. 

Which conclusions can be drawn from this for the allocation?

• The solid economic development, the low inflation, and the monetary policy, which is very supportive to the economy, are positive for risky asset classes (f.e. equities, corporate bonds)
• Also, the reduction in tail risks for deflation and the break-up of the European Union (presidential election in France) are two important hurdles that have now been cleared.
• The ECB is likely to gradually reduce the bond purchase program.

Forecasts are no reliable indicator for future developments.

https://de.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”.