{"id":41067,"date":"2015-03-23T01:34:12","date_gmt":"2015-03-23T00:34:12","guid":{"rendered":"http:\/\/beta.next-finance.net\/1-interview\/malik-haddouk-in-fixed-income-we-are-focusing-in-the-short-term-on-exposure-to-long-maturities\/"},"modified":"2019-12-30T23:30:32","modified_gmt":"2019-12-30T22:30:32","slug":"malik-haddouk-in-fixed-income-we-are-focusing-in-the-short-term-on-exposure-to-long-maturities","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/1-interview\/malik-haddouk-in-fixed-income-we-are-focusing-in-the-short-term-on-exposure-to-long-maturities\/","title":{"rendered":"Malik Haddouk : \u00ab In fixed income we are focusing in the short term on exposure to long maturities \u00bb"},"content":{"rendered":"

How would you describe 2014?<\/strong><\/p>\n

2014 turned out to be a high-quality vintage for most risky assets.
\nThe MSCI World gained more than 19% on the year, and fixed-income
\nassets on the whole achieved strong performances, particularly on
\nmaturities greater than 10 years. To cite one example, an investment
\nin the EuroMTS 15+ years (i.e., the euro zone yield on maturities
\ngreater than 15 years) in 2014 would have achieved a return of more
\nthan 33%, or six times the performance of the MSCI EMU equity
\nindex. 2014 was an unusual year, dominated by the quest for returns
\nwith heightened risk-taking. However, it was no walk in the park. The
\nmarkets performed well early in the year, despite concerns over the
\nsolidity of growth in the US (hit by poor weather) as well as the impact
\nof the Japanese VAT rate hike, which once again drove the country
\ninto recession despite the implementation of the famous three
\narrows.<\/p>\n

Risk aversion returned in the second half with severe corrections
\n(-10%) on the equity markets three times in six months amidst doubts
\non economic recovery in the euro zone and exacerbated geopolitical
\ntensions in Ukraine, the Middle East and the China Sea. All these
\nfactors ended up undermining global economic growth, forecasts of
\nwhich were steadily revised downward.<\/p>\n

All these factors ended up undermining global economic growth,
\nforecasts of which were steadily revised downward. Emerging
\nmarkets, meanwhile, suffered in a context of dropping commodity
\nprices and geopolitical uncertainty. A distinction should be made here
\nbetween the different regions. While the Brazilian market ended in
\nnegative territory, China and India achieved a remarkable year. Even
\nso, the acceleration in US growth late in the year, with the job market
\nstrong once again, reassured investors on the robustness of the
\neconomic recovery, at least in the US. Without a doubt, central bank
\ncommunication and actions remained the most decisive factors in the
\nongoing market rally.<\/p>\n

Alongside the spectacular pullback in sovereign yields, 2014 was also
\na year of monetary innovation by the ECB, which used almost all its
\ntools to support the recovery of a euro zone bogged down in the risk
\nof deflation. These included a low refi rate, a negative deposit rate,
\ntargeted long-term refinancing operations (TLTRO), and purchases of
\ncovered bonds and ABS).<\/p>\n

Even so, investors are still eagerly waiting a true quantitative easing
\nprogramme via sovereign bond purchases. And don\u2019t forget that the
\nBoJ expanded its quantitative easing program to more than 80.000
\nbillion yen, leading to a further marked decline in the yen, which hit
\n120 to the USD at yearend, a level it had not seen since 2007.<\/p>\n

What were the most noteworthty bets in cpr invest reactive?<\/strong><\/p>\n

Management of CPR Invest Reactive was once again highlighted by
\nquick responsiveness throughout the year. To cite one example, the
\nequity exposure of CPR Invest Reactive ranged from 37% to 80%,
\nwhile the portfolio\u2019s sensibility ranged from 0.6 to 4 during the
\nperiod under review. Our big achievement this year was to have
\nvery skillfully weathered a tumultuous summer period during which
\nour funds as a whole achieved gains despite a significant market
\ncorrection.<\/p>\n

\"cpr_invest_reactive_s_euro_equity_exposure_and.jpg\"<\/p>\n

We then diversified the portfolios, for example by taking aggressive
\npositions on the Chinese A equity market (local shares). After being
\ncompletely neglected by investors since the 2007-2008 crisis, this
\nmarket had been steeply undervalued compared to developed and
\nemerging markets on the whole, despite several support factors
\nsuch as ongoing structural reforms or the opening of the local
\nequity market to investors through the implementation of
\nshareholding quotas. Meanwhile, we raised our portfolios\u2019
\nsensitivity considerably,
\nlengthening our positions to overweight 15 year + positions.<\/p>\n

This strategy was implemented in both US and European sovereign
\nbonds in a global economic environment that is still marked by
\nweakness, sluggish wage growth, and the growing risk of deflation.
\nIn October, we shared with our strategists the strong conviction
\nthat the BoJ would announce a second wave of quantitative easing,
\nthus pursuing the dual objective of raising inflation expectations
\nand supporting economic growth undermined by the April VAT rate
\nhike. Remember that the rate hike had precipitated the Japanese
\neconomy back into recession.<\/p>\n

We then raised our Japanese equity exposure aggressively (while
\nhedging it for currency risk) two days before the BoJ\u2019s
\nannouncement, a strategy that paid off for the fund.<\/p>\n

\"cpr_invest_reactive_s_euro_equity_exposure_and_ii.jpg\"<\/p>\n

Another major investment theme came in June, when we began
\nto set
\nup dollar positions, to get the jump on the announcement of the
\nend of quantitative easing and the return to near-potential
\ngrowth in the US.<\/p>\n

We also steadily increased our exposure in light of insistent
\nrumors that the ECB would set up a quantitative program in the
\neuro zone.<\/p>\n

What\u2019s in store for 2015?<\/strong><\/p>\n

In 2015 we should see a slight acceleration in global economic
\ngrowth, driven mainly by falling oil prices, which should boost
\ndomestic consumption more or less everywhere. Even so, the
\npace of growth will remain below its mediumand long-term
\naverage worldwide, due to the trend decline in growth prospects
\nin the major emerging markets (BRIC) and the weak outlook in the
\neuro zone. We expect 2015 to be far more volatile than 2014, as
\nthere will be more challenges to meet.<\/p>\n

Without going through the entire list, we can cite the hoped-for
\nreturn in euro zone confidence with, as a corollary, further structural
\nreforms aiming to enhance the competitiveness of the region\u2019s
\neconomies, the smooth normalization of the Fed\u2019s monetary policy,
\nthe success of new stimulus plans in Japan, and the stabilization of
\nChinese growth, which is essential for avoiding social tensions. In the
\nshorter term, concerns early this year
\nare focusing on weak inflation and wages, despite the expansionist
\nmonetary policies conducted since 2008. Without going through the
\nentire list, we can cite the hoped-for return in euro zone confidence
\nwith, as a corollary, further structural reforms aiming to enhance the
\ncompetitiveness of the region\u2019s economies, the smooth
\nnormalization of the Fed\u2019s monetary policy, the success of new
\nstimulus plans in Japan, and the stabilization of Chinese growth,
\nwhich is essential for avoiding social tensions. In the shorter term,
\nconcerns early this year
\nare focusing on weak inflation and wages, despite the expansionist
\nmonetary policies conducted since 2008.<\/p>\n

Against this backdrop, what allocation strategy is best for 2015?<\/strong><\/p>\n

Investors must be able to negotiate key turning points from the very
\nstart of the year, whereas there are high hopes that a European
\nquantitative easing program will soon be announced.<\/p>\n

After several warning shots in European equities since last summer,
\nthere could be a notable spurt in volatility if the ECB were to
\ndisappoint investors just as the Greek political situation is stirring up
\nold fears.<\/p>\n

The year\u2019s other big turning point will be the Fed\u2019s rate hike in
\nresponse to the strength of the US economy and, above all, to what
\ndegree this will be priced in by the markets. The cyclical lag between
\nthe euro zone and the US should, in fact, prolong the USD\u2019s
\nappreciation vs. the euro. While monetary authorities will continue
\nto watch their words carefully to prevent a spike in yields, a spring
\n2013-like shock cannot be ruled out. Such a scenario would have a
\nserious impact on emerging markets, which are already being hit by
\nthe collapse in commodity prices and weak European growth. All
\neyes will also be on Japan. As the government\u2019s highly aggressive
\npolicy will probably be more pro-earnings than pro-GDP, it is likely to
\ncontinue driving equity performance. However, as in Europe, the
\nshock will be commensurate with hopes if earnings let down
\ninvestors. And, lastly, liquidity on fixed-income markets will
\nobviously remain a key factor in the US as in Europe, where yields
\nare very low. Against this backdrop we are now overweighting
\nequities vs. bonds, in light of current valuations and the
\ntrend towards higher interest rates likely to begin in the US.<\/p>\n

We are retaining a large portion of our equity exposure in the US,
\nwhich is more robust and now riding the stronger dollar, and Japan,
\nwhich, in our view, is the best investment opportunity. Policies in
\nthe euro zone are nonetheless likely to bear fruit and would
\nencourage us to reallocate to the euro zone \u2013 gradually, in order to
\navoid \u201cfalse rallies\u201d.<\/p>\n

In fixed income we are focusing in the short term on exposure to
\nlong maturities (> 10 years), which are likely to get a boost from
\nquantitative easing and weak inflation. During the year corrections
\nwill be more drawn out, with an ultimate gain of about 5% to 8%.
\nOnce again, the allocation\u2019s responsiveness will be decisive in
\nweathering bouts of market volatility, such as occurred in late 2014.