Euro Pacific Bank

Euro Pacific Advisors’ Portfolio Commentary: Q2 2019

Published: July 1, 2019

euro pacific advisors fund manager portfolio commentary


Relevant Strategies

  • Moderate
  • Balanced (and International Balanced)
  • Growth
  • Aggressive Growth (and International Growth)
  • Gold & Precious Metals
  • Natural Resources

Our Commentary

Positive returns were seen across all asset classes in the second quarter of 2019 even though the outlook for global growth weakened again.

Equities

In equity markets, the US and Europe provided some of the strongest returns as the central banks in both regions indicated that interest rates were likely to fall in the short term. As a result, bonds and gold also performed well. In currencies, the pound was weaker against all the major competitors with falls of between 2% and 5% against the dollar, euro and yen.

The FTSE 100 rose 2.8% on a total return basis with the more domestic FTSE 250 up 2.3%. Gains for UK investors in overseas markets were augmented by weakness in sterling.

In sterling terms, the broad US S&P 500 Index made a total return of 6.3% ahead of the technology focused NASDAQ which rose by 5.9%. The MSCI Europe Index made the best gains, up 8.2%, helped by comments from the European Central Bank.

Returns in emerging markets were lower, reflecting some concerns of a slowdown. The MSCI Emerging Markets Index returned 2.8%. In Japan, the Nikkei 225 gained 5.5%.

Fixed Income

Bonds benefited across the board from declining interest rate expectations. Gilts made a total return of 1.8% with Index Linked Gilts up 2.0%. As risk appetite returned, corporate bonds performed even better, gaining 2.4% over the quarter with High Yield bonds up 2.2%.

Commodities

Gold was the greatest beneficiary from the less aggressive stance of the central banks. Lower interest rates highlighted the attraction of gold as a non yielding alternative to cash and a store of value. The precious metal added an impressive 12.7% in sterling terms with certain investors speculating that it is set to break out into a new trading range. The absolute return sector made a total return of 1.1%, adding to gains from the first quarter.

Portfolio Actions

We have reached an interesting juncture with an apparent contradiction in capital markets. Whilst further falls in bond yields suggest recession on the horizon, this is not shared by the strength in equity markets.

The fact that interest rates now appear to have peaked is perhaps an admission that we are close to the end of the economic cycle. It is therefore surprising that equity markets have been so buoyant. Despite the best endeavors of central banks, equity markets are unlikely to be supported forever should the economic cycle turn down.

Diversification across asset classes and regions with a sensible amount of liquidity set aside for future opportunities remains a sensible approach at the current time.

Regards,

Euro Pacific Advisors Management Team