2022 is a choppy year with investors facing a lot of uncertainties. Throughout the year, clouds are mounting on the financial sky: inflation, deceleration (recession?) of economic growth, war in Ukraine, Covid, supply bottlenecks, energy shortages, central banks monetary policy tightening, etc.
This time around, the saying “sell in May (even before) and go away” was particularly useful. If you are still invested at mid-year, maybe the below strategies will help you to survive the summer.
On the bond side, the primary market is not very active during the summer, liquidity is low, rates are volatile, just like any other market! So, I would suggest using defensive strategies and come back to duration or credit spread strategies after the summer. In this bond world, some strategies are still worth a look, I could mention inflation funds which benefit from inflation indexing, with low duration to bet on realized inflation, like AXA WF Global Inflation Short Duration Bonds. China is a rare country that is engaged in an easing monetary policy to combat slowing growth. There, the local bond market in sovereign bonds (to avoid the real estate credit) is secure and rates are not expected to go up. The Gavekal China Onshore RMB Bonds is a good candidate to play this bet. Duration can be a trap during the summer, betting on floating rate notes would protect your portfolio against rates moving higher, in this category I would suggest the M&G (Lux) Global Floating Rate High Yield Fund. To diversify your portfolio, you could invest in a fund that has practically no correlation to US rates, as it is the case for Insurance Linked Bonds (cat bonds) like the GAM Star Cat Bonds which are mainly linked to US storms, hurricanes, earthquakes and fires.
On the equity side, cyclical sectors have outperformed this year thanks to energy, materials, or industrials, but still less than very defensive sectors like consumer staples and utilities. Considering the economic uncertainties, I would suggest staying on this trend of high quality, defensive or low volatility stocks, both in Europe and the US. In the low risk products offering, I appreciate the Robeco QI European Conservative Equities and its US equivalent Robeco QI US Conservative Equities (even the Emerging Markets version is appealing). These quantitative strategies apply low volatility filters and also focus on attractive valuation, good earnings momentum and positive analyst revisions.
Some directional Long/Short strategies can navigate well in choppy waters, this is the case for Liontrust European Strategic Equities Fund and Lumyna Marshall Wace TOPS UCITS fund. The first fund is managed thanks to a cashflow solution investment process investing in long, synthetic long and synthetic short positions. The second is a quantitative strategy that tries to capture the alpha residing in the stock ideas of contributors within the wider sell-side community throughout Europe.
Marshall Wace ESG Market Neutral TOPS UCITS fund uses the same methodology adapted to a long/short market neutral strategy. This fund also uses an ESG overlay which allows it to be classified SFDR 8.