Every year, J. P. Morgan Asset Management (JPAM) gathers the international press at the beginning of the autumn to offer its vision of the market. The event of the manager, one of the largest in the world with 1.7 trillion dollars in assets, is held between its headquarters – the former School of the City of London – and some emblematic building in the city. This time it was the halls from which Winston Churchill led the British forces during World War II, safe from German bombs. Coincidence or not, the chosen space marries perfectly with the idea of force launched by the American entity: investors are at the end of the base of bonanza and it is convenient to have a bunker handy for when they come badly given.
"The end of an economic cycle and the market does not mean that risks are not taken, but it does mean that we need to know perfectly the risks that are being taken, "said John Bilton, responsible for the multi-asset strategy of the manager. A message shared by Massimo Greco, head of European JPAM business: "Economic expansion and bull markets do not last forever. That's why you have to diversify and build an investment portfolio with assets that usually do well at a time like that or even if there is a recession. "
During the two days of presentations to the invited media, including EL PAÍS, the managers repeated that the economic fundamentals they are good: almost all the world economic regions are growing at a good pace and liquidity, despite the change in policy of the central banks, continues to be abundant. However, they also put on the table a series of risks to be taken into account. Among them, the impact of the commercial war and, above all, the overheating of the US economy that can bring more inflation and, with it, faster increases than expected in interest rates.
The business of asset management is also pressured by the disruption brought by social and sociological changes. At a time when industry margins are suffering from downward pressure on commissions, Chris Willcox, CEO of J. P. Morgan Asset Management, believes that the greatest danger for managers is "complacency." In his opinion, the sector is at a turning point, pressured in turn by the incessant regulatory changes. One of the policies of the US management is to go towards fewer products. "Right now in Europe there are more funds than listed companies. When there is so much supply it is usually synonymous with mediocrity. " Another of his bets is to expand the company's activities in Asia. "It is impossible not to have a strategy in China."
"Throughout history, the factors that triggered a recession were varied," said Robert Stewart, one of the strategists at the fund manager. "In this cycle, the greatest risk is liquidity. And it is in a double sense: on the one hand, if rates continue to rise, the cost of capital of companies will become more expensive. In addition, from the point of view of the market, a change of general sentiment in it will test the ability of the system to absorb the outflow of money from one asset to another, "he added.
Choose the occasion
The fundamental question for an investor is to choose well the moment in which the steering wheel must turn to change direction. During the different presentations the idea was insisted that, with two data in hand, leaving the equities very early in the final phase of an upward cycle can lead to the loss of very profitable returns. "Timing is crucial. The tail winds can boost the markets for six or 12 months. As the statistics show, abandoning an upward stage in advance may mean losing between 10% and 15% of additional market rise, "according to Karen Ward, chief strategist at JPAM.
Investors now have a cushion to maintain a certain level of risk, without giving up the transition to more conservative portfolios. That factor is the US 10-year bond, whose profitability is already at 3.1%. "For the first time in a long time, the real yield of the bond [descontando la inflación] it is positive in most of the curve of types. That means that in the part of the equity portfolio I can continue to assume more risk because in fixed income assets I am remunerated for not doing so, "according to Bilton.
The US manager gave some clues about how to build stronger portfolios. The first advice is the diversification, not only of assets, but also of geographical areas. "It could also be a good idea to favor large companies against medium and small capitalization values. Another strategy that usually works is to prioritize those solid businesses (value), compared to the sectors of greatest growth (growth). Having liquidity and assets with little correlation with the markets are other options, "Ward said.
As the returns are scarce and difficult to find, a determining factor for the investor's pocket is that of the currency. So far this year, the dollar has appreciated strongly against most currencies. This trend is explained because the monetary policy of the United States is at a more advanced stage than the rest. Higher interest rates attract more money flows and the greenback benefits from this virtuous circle. "The dollar could continue to do well until the end of the year, but then we expect the euro to strengthen as the European Central Bank becomes more aggressive," Bilton said.
In addition to the economic and stock market analysis, two geopolitical issues overflowed the event: the Brexit and the populist drift of the Italian Government. JPAM believe that both factors bring uncertainty to the market and, therefore, greater volatility, but foresee that the negotiations will end up coming to fruition. In the case of Spain, which other years played a large part in the presentations, this time it was in the background. "I love the Spanish market. There are pioneer companies in their sectors such as Inditex and Grifols. What happens with the local stock exchange is that it is conditioned by the strong weight of sectors that do not go through their best, such as banking or electricity, "said Stephen Macklow-Smith, head of European equities.