Unquestionably, 2018 was an interesting year for investors. After a rocky start, there seemed to be a period of relative calm, before volatility made a comeback in the fourth quarter. Political risk has dominated the headlines and that seems unlikely to change as we move into 2019. Whether you look at the ongoing trade tensions between the US and China, Italy’s potential to threaten another European debt crisis or the impact of Brexit, volatility is only likely to increase from here. Navigating such an environment calls for a flexible, diversified and opportunistic approach to investing.


Our Panel Responses

Sophie Chauvellier
Sophie Chauvellier

Fund Manager & Economic Research and Asset Allocation Dorval Asset Management

On interest rates…
“The normalisation of rates is typically good for equities, though much of this is already priced in.”

On political risk…
“With regard to Italy, we are not in a recession and we do not expect there to be one in 2019. Political risk, or at least the negative perception of political risk by the market, looks to have reached its peak and should begin to level off – even the BTP/Bund spread has fallen from its peak.”

On flexibility…
“It was difficult year in 2018. Cyclicals suffered a significant sell-off and mid-caps were down between 30% and 50%, both areas where we had significant exposure. Given the current environment and the speed and severity of market moves, we have reduced our equity exposure and are using more derivatives, in the form of futures, which allows us to be more agile.”

On opportunism…
“The drawdowns that we have seen more recently represent interesting buying opportunities. At the beginning of last year we were struggling to identify new investment ideas with markets trading at such high valuations. Today, the market seems to have over-corrected with liquidity-sensitive assets having suffered heavily. A lessening of political risk is a necessary catalyst to unlock value.”
We’ve been in a very long cycle, starting in 2008 for many countries, and we are coming towards a recession in the US in 2020. So, as an asset manager, we are having to accommodate a declining growth environment where the market is going to be more volatile.”
Sophie Chauvellier

Sophie Chauvellier holds a master's degree in International Trade and a degree in Chinese. She started her career in 1997 in Hong Kong as buy-side Analyst in a South African bank, INVESTEC. In 2000, she joined Oddo Securities as sell-side equity Analyst and was then appointed fund of funds Portfolio manager in 2005, before joining Dorval Finance in October 2008.

Maura Murphy
Maura Murphy CFA®

Vice President and Portfolio Manager Loomis, Sayles & Company

On interest rates…
“The Fed is unlikely to hike interest rates three times next year, as was previously predicted, and it is noticeably more cautious. We predict just one, possibly two, major hikes next year.”

On political risk…
“A resolution in Italy, oil price stabilisation and a reprieve in the US/China trade tensions could be positive for market sentiment. That being said, volatility is only likely to increase from here. We’re prone to having fits and starts and more volatile market reactions.”

On flexibility…
“Market volatility is here to stay, so we need flexibility and the ability to be tactical. Value based investments are what’s needed to be able to respond.”

On opportunism…
“We’re focused on domestic US equity, as the US is currently the global growth engine. But we’re also paying close attention to China given the targeted reforms which, if successful, would boost public and private sector demand and become a catalyst for growth. We have reduced exposure to emerging market debt, but there could be selective opportunities there going forward.”
One of the bigger under-priced risks at the moment is inflation upside. We’ve been in such a low inflation environment due to quantitative easing and also structural changes to the global economy that inflation has been very low for a long period of time.”
Maura Murphy, CFA®

Maura Murphy is a vice president and portfolio manager at Loomis, Sayles & Company. Ms. Murphy began her investment industry career in 2003 upon joining Loomis Sayles as a quantitative analyst. In 2007, Ms. Murphy moved to a position as absolute return analyst, working as an investment strategist for all absolute return oriented portfolios.

Ms. Murphy earned a BA in mathematics from the College of the Holy Cross and an MBA from the Carroll School of Management at Boston College. She is a CFA® charterholder.

Michaël Soued
Michaël Soued

Head of Aggregate and Multi Asset Total Return Ostrum Asset Management

On interest rates…
“We are all wary of the normalisation of rates in Europe. Our view is that it won’t happen soon, or if it does, it will do so slowly. There are two reasons for this: one, there are no signs of inflation; and two, the ECB will be cautious when it comes to tightening and will need to reinvest their redemptions.”

On political risk…
“Trade tensions represent a strategic reset of the balance between US and China. The strong confrontation is part of a long term rebalancing of the trade equilibrium between the world’s two biggest economies. It started abruptly but should soften over time.”

On flexibility…
“The current environment is confirming our expectations of slowing growth and rising volatility. Asset classes are beginning to exhibit greater dispersion which will require greater flexibility in order to cautiously capture good value opportunities. Why cautiously? Falling liquidity will force investment managers to put risk first and be more discerning in their security selection, or risk the consequences.”

On opportunism…
“Diversification will be crucial. To this end, we’re now looking beyond the classic diversification opportunities within the aggregate and multi-asset absolute return landscape and beginning to incorporate risk premia and volatility-linked strategies into our toolkit.”
The current environment is confirming our expectations of slowing growth and rising volatility. Asset classes are beginning to exhibit greater dispersion, which will require greater flexibility to ‘cautiously capture’ good value opportunities.”

Michaël Soued

Michael Soued is head of aggregate and multi asset total return within the euro interest rates unit.

Michael beagan his carreer as a currency option trader assistant at LCFER (Compagnie Financière Edmond de Rotschild) and was then appointed as a derivatives account manager for Fimat/Sogenal in Luxemburg. He then joined Louis Dreyfus Finance as a fixed income arbitrager and ECU/DEM market-maker during two years. He was then appointed as haed of fixed income and currency for SSGA France. He was also in charge of active euro strategies for the group and has been involved in several cross border projects. From Septembre 2009 to April 2013, Michael was responsible for euro aggregates activity at Oddo AM managin a brand of credit, aggregates and sovereign funds for different type of investors. Michael Soued holds a Master's Degree in Capital Markets & Corporate Finance from Paris Dauphine University. He obtained the French regulatory body certification (AMF).


This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.

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