INVESTMENT STRATEGY - Lyxor
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
2ND QUARTER 2021
INVESTMENT
STRATEGY
Contact email CrossAssetResearch@Lyxor.com. Slides updated as of April 26, 2021
Important Notice: For investors in the European Economic Area, this material is directed as clients (actual or potential) who meet the definition of a “Professional Counterparty” or
“Eligible Counterparty” under the Markets in Financial Instruments Directive (“MiFiD”), and any products or services described which fall within the scope of MiFiD are only available to
such clients. This communication is a marketing communication within the meaning of MiFiD. MARKET RESEARCH >> INVESTMENT STRATEGY
Risk-on positioning
Ongoing reflation / EPS-driven markets
US economic boom w/o sustained inflation
upturn but likely to raise inflation fears
Europe behind but on the road to normality
with growth rebound and muted inflation
Tentative exit from deflationary regime,
i.e., from >0 Equity to Yield correlation
O/W Equities (US EMU JP)
Value/Growth through Sectors
U/W Govies
HY Down to Neutral
Bullish tilt on cyclical commodities
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 2
EPS-driven markets
MARKET RESEARCH >> INVESTMENT STRATEGY 3Covid-19
Backdrop
MARKET RESEARCH >> INVESTMENT STRATEGY 4Uneven Covid-19 backdrop
Resulting from immunity from previous waves + Vaccination + Mobility restrictions
Pandemic may turn endemic as variants multiply but most vaccines seem able to prevent
severe symptoms from variants, allowing a return to normality, rather than herd immunity
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 5… with the latest wave hard to contain in some countries
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 6Covid-19 vaccination: Eurozone behind
US easing mobility restrictions; EMU still constrained
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 7Vaccination works (IL Pfizer / UK AstraZeneca)
UK & SA variants present in IL & UK
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 8Upward revision to US growth likely to continue
Risks in EMU related to vaccination supply & rollout
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 9Timing the return to pre-Covid GDP level
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 10US
MARKET RESEARCH >> INVESTMENT STRATEGY 11U.S. looming economic boom
Massive fiscal stimulus $5tn Covid-19 rescue + coming $4tn recovery plan
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 12Inflation: from commodities to wage worries
Wage growth capped by labor market slack
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 13Stay O/W US Breakeven before …
Little visibility on 2/3Y inflation outlook
What post-Covid normalcy (output gap,
nGDP, labor costs …) ?
Oversupply will need to be reassessed
once the ongoing default wave is over
Structural tail risks rising
Peace dividend (end of Cold War) over
Budgetary discipline vanished with
2009 & Covid-19 crises
Monetary unorthodoxy aimed at
fostering an inflation revival
Free trade & GVC threatened
Sentiment now against disinflation
Technology downward impact to last
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 14… the Taper threat
Taper impact
YTD Changes May-June
in bps 2013
US 10YY 65 85
US 10Y Break-Even Inflation 35 -35
US 10YY Term Premium (Fed, Kim-Wright) 48 60
US 10Y Average Implicit Real ST Rate (K&W) -19 60
US 3YY 17 36
US 3Y Break-Even Inflation 70 -40
US 3YY Term Premium (Fed, Kim-Wright) 18 27
US 3Y Average Implicit Real ST Rate (K&W) -71 50
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 15Fed committed to AIT framework … but revised up its forecasts
Fed to act on actual data not
forecasts, not preemptively
Tapering well before liftoff
Tapering announced late 2021?
No liftoff before:
labor cond. max. employment
Inflation @2% and not transitory
Inflation on track to exceed 2%
Liftoff in 2023?
Current QE
$80bn UST + $40bn MBS
Fed keeps control of the short end
of the curve ; Up pressures on long
maturities to continue Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 16U/W long dated UST: Fed YCC focus on short maturities
12M target @2.25%
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 17Downgrading US High-yield to Neutral
Spread compression well advanced; base risk increasing
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 18S&P 500 Sales: rebound ahead
2020 sales down -3% in 2020
Model assumptions
Nom GDP estimates from CBO
DXY stable N12M
WTI @ $65
Rebound +8% in 2021 and
+6.7% in 2022
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 19Strong EPS prospects
Bottom-up and Top-down
convergence on EPS estimates
2021 > 25%
Up risks to 2021 EPS amid
upside in economic activity
2022 EPS outlook clouded by
Biden’s tax agenda
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 20Recovery Part I – Infrastructure / Corporate tax outlook
American Jobs Plan (outlined on 31 March):
≈$2tn infrastructure (road, bridges, green
energy, etc. …Funded by ▲ corporate taxes
Made in America Tax Plan:
▲corporate tax rate from 21% to 28% or
more likely 25%. (28% top OECD)
Quasi-worldwide regime (reduced rate)
▲ Tax on foreign income (minimum tax
“Global Intangible Low Taxed Income “
closer to new domestic tax rate
=> minimum tax ≈20%.
Likely acceleration in OECD multilateral
negotiations on a Global Minimum Tax to
halt the race to the bottom in corporate tax
rates. (GILTI at 20% would become US
minimum tax)
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 21US Corporate tax outlook
Impact on S&P500 EPS
Made in America Tax Plan: negotiations over the
summer; bill passed in late Q3 or Q4.
Effective
Tax reform to take effect in 2022, likely phased-in. Tax Rate
Effective
Tax rate S&P 500
Weighed
Median
average 100%
18.6 19.4 Sectors
Depending on the reform’s specifics: 31.1 23.2 2.4% Energy
23.0 21.2 2.5% Materials
Corporate America effective tax rate ▲+5 pp 20.1 22.1 8.1% Industrials
Tax reform could trim 2022 S&P 500 EPS by 3% 19.2 19.0 12.7% Consumer Discretionary
to 10% overall, but uneven across companies.
Higher domestic rate to hurt stocks with high 26.3 22.0 6.3% Consumer Staples
domestic exposure (Fin., Indust., Consumer) 21.8 19.0 11.8% Health Care
▲ minimum tax on foreign earnings to affect IT 20.2 19.5 10.8% Financials
and Healthcare.
3.9 1.1 2.3% Real Estate
16.0 14.8 25.6% Information Technology
14.4 20.4 15.2% Communication Services
Macrobond, Lyxor AM
18.3 19.9 2.4% Utilities
MARKET RESEARCH >> INVESTMENT STRATEGY 22Recovery Part II – Social / Household tax outlook
American Families Plan ≈$1-2tn social spending
for low, middle-income, and elderly:
▼ healthcare cost ▲ direct cash assistance
(primarily via tax credits)
Funded through ▲ taxes on wealthy households
Biden’s possible plan (not yet announced)
▲ federal capital gain tax to 39.6% for wealthy
households (income>$1M). Combined with
current 3.8% tax on net investment income =>
43% tax on LT capital gains
▲ top marginal income tax from 37% to 39.6%
Congress will likely pass a scaled down version.
Tax hike likely to take effect Jan 2022
Mid-point between current tax on LT capital gains &
Biden’s plan ≈ 28%
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 23O/W US Equity
Conducive vaccine rollout
Massive fiscal stimulus & lasting
monetary accommodation
EPS growth > +25% with up risks
Valuations supported by Fed’s
unorthodox policies
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 24Neutral EURUSD
ECB / Fed status quo
Macro gap likely to fade
IR gap should favor USD but
Eurozone reflation to attract flows
USD safe-haven feature
EURUSD gap to PPP @13%
Speculative positions fading
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 25EUROPE
MARKET RESEARCH >> INVESTMENT STRATEGY 26EMU joining the reflation party
Services & Consumer Confidence awakening
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 27Europe recovery delayed but nearing
Consensus: recovery to start in Q2
Sustained mobility restrictions
suggest downside risks
Yet, potentially huge pent-up
demand could be unleashed late
Q2 & Q3 (if/when restrictions are
eased)
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 28EMU current lack of fiscal support; stimulus backloaded
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 29EMU Inflation: upside likely transitory (distorted wages trends)
Neutral EMU breakeven
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 30ECB highly accommodative
Rates unchanged in 2021/22
QE= PEPP €1850 bn until Mar 2022
+ APP €20bn per month
PEPP frontloaded (€bn/month):
71 in Q3 2020 ; 63 in Q4 2020 ;
73.5 in Q1 2021
Current envelope => $75.5bn/M
Net-Net supply to switch back to
negative territory
3 TLTROs over next 3 quarters
March TLTRO attracted € 330bn,
above recent ones
4 PELTROs on a quarterly basis
during 2021; tenor 1Y; rate 0.25%
(liquidity backstop for banks)
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 31U/W 10Y Bunds
Target 3M@ -0.2%; 12M @0%
Contagion from UST
Bund curve steepening
likely to continue
Recovery in inflation
expectations well-
advanced
Germany Govies net-net
issuance largely negative
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 32Neutral Peripheral Debt: Yield rise capped by ECB’s QE; ST down
risks on macro-outlook; yet, reopening nearing and likely to favor reflation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 33IG Credit (N) slightly favored over Bunds & Gilts
HY Credit (N): default complacency; high beta continued to outperform
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 34O/W EMU Equities to leverage global growth
52% EBITDA from overseas (SXXE, FY20) o/w US ≈50%; DY ▲ @3.2%
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 35EMU sectors: prefer Cyclicals to Defensive
Cyclicals: IT, Cons. Disc, Materials, Industrials, Financials, Real Estate
Defensives: Cons. Staples, Utilities, Energy, HealthCare, Com. Services
▲Financials (14%) tactical Buy
Higher beta to Bund yields
Weak credit growth but
dividend ban eased; valuation
O/W Cons. Discretionary (17%)
O/W Materials (7.5%)
Rich valuation but significant
beta to Bund yield
U/W Cons. Staples (8%)
U/W Real Estate (2%)
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 36UK Macro outlook
Brexit impact (EC Forecasts – Feb 2021) & BoE Inflation projections
24 Dec 2020 EU & UK Trade &
Cooperation Agreement, incl.
FTA (0 tariff 0 quotas on goods
compliant to rules of origin)
TCA => lower drag on growth,
concentrated in Q1 2021
Increase in non-tariff barriers
(‘NTBs’) equivalent to new tariff
of 10.9% for EU imports
of 8.5% on UK imports
Output loss EU -0.5% by end 22
Output loss UK -2.25%
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 37Neutral UK Gilts with a bearish MT bias
Rapid vaccine rollout suggests a gradual reopening in Q2
BoE to stay put over N2Y even in
case of strong & early recovery
Consensus Q2 at +4.8% after Q1
@ -3.5%
Fiscal support extended until
30/09; capex to be boosted by 2Y
super-deduction for capital
allowances*: increase in
corporate tax rate to start in FY
2023-24 (from 19% to 25%)
* Companies can claim 130% capital allowances
on qualifying plant and machinery invest. for
expenditure incurred from 1 Apr 21 to 31 Mar 23
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 38Tactical Buy UK Equities: vaccination / reopening; fiscal support extended
until Sept; ▲corporate tax rate (19% to 25%) in FY 23/24; EPS up; dividend yield.
Neutral GBPUSD
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 39JAPAN
MARKET RESEARCH >> INVESTMENT STRATEGY 40Japan: structural pressures but external & domestic upside
Large output gap; potential growth=0
Pandemics recent upturn but
vaccination started mid-February
Further recovery in exports (80% to
China, US, Asia). Strength in cyclical
services machinery, auto, tech
Topix 40% foreign exposure incl.
15/20% in US & China
Domestic upside if/when confidence
returns and drives consumption
Tokyo July Olympics (July 23)
without foreign spectators
MT positive Suganomics impacts
with tech & M&A driven Capex
Macrbond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 41Japan: exposed to US reflation & isolated from US rates
Neutral JPY
US rate isolation + Reflation benefit:
Low Japan rates beta to US rates (BoJ
committed to YCC)
Would benefit from higher USD
BoJ only a tad more hawkish
Raised daily LT rate trading range 5bp to
25bp, removed explicit annual ETF QE
target (focusing on TPX vs NKY)
Marginal improvement in CPI towards 0
JPY: Neutral
Little monetary differentials with other DM
Weaker JP investors’ rationale to rush into
to foreign assets
Favorable (U/W) foreign positioning
Macrbond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 42Staying O/W Japan Equity
Strong exposure to US reflation
Monetary & Fiscal support
Lower US-China trade war risks, and
solid strategic US-JP alliance
Suganomics market friendly policies:
(corporate deregulation, restructuring,
shareholder reforms) loosely priced-in
EPS upside: high operating leverage
JP equity under-owned & diversifier
Valuation stretched (post 08 crisis)
Key themes for Q2:
US reflation (rather than Asia recovery)
Value & Cyclicals
World trade focused industrials (to build
up capacities); Chip supply chain
replacement (semi & equipment)
Macrbond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 43EMERGING
MARKETS
MARKET RESEARCH >> INVESTMENT STRATEGY 44EM Economies: recovery to prevail after Q1 mild soft patch
Uneven pandemic trends; overall
vaccination slower than DM
EM activity resilient; CEE more
vulnerable than Asia
>0 growth drivers : ample dollar
liquidity, global trade acceleration
Moderating China: lower stimulus
and manufacturing full recovery
Erosion in structural EM/DM
growth differential (reshoring,
protectionism, slow dom. Cons.)
Higher political risk than DM
[Elections: CHL Apr11, MX Jun6, IR
Jun18, TWN Aug28, RU Sep19, CZ Oct8,
IQ Oct10, AR Oct24, CHL Nov21] Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 45EM Economies: Pivotal US Reflation
Fundamental EM risks have receded
US to attract flows at the expense of EM (FX)
Likely to support assets most connected to its
supply chain (CH, IN, SK,TWN, Mexico)
Upside from green / infrastr. / housing capex
CEE upside growth will rather be paced by EU
EM lower vulnerabilities to capital outflows.
Better overall situation, and the “Fragile 5” are
more dispersed and idiosyncratic
Investors to focus on improving growth
prospects rather than capital flow risk
EM likely to better navigate higher US rates &
USD volatility (unless related to Fed policy shift)
EM risk premium should be average
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 46EM: Inflation & Pandemics remain
key risks / differentiators
Inflation remains a key risk to monitor
though:
Inflation surprises are intensifying,
mainly due to commodity prices, but
unevenly
EM countries where Core CPI is rising
look more at risk
Will likely prompt a selection of central
banks to tighten (TK +200bps, BZ, RU,
delayed MX cut?)
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 47EM Equities: Tactical Buy
post correction
Technical, Positioning & Valuations cleaned.
5-10% upside potential
Brighter EM backdrop, receding macro risks
lift a hurdle for equities
EM rate hikes (+120bps priced for N12M)
US reflation net positive for EM
EM assets should navigate higher US rates
Key movers and differentiators:
Pandemics trends
Sensitivity to higher inflation, to commodity
prices, to US reflation
Rotation towards laggard likely to continue,
with volatility until US rates stabilize
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 48EM Equities – Tactical Buy China & Neutral- Brazil
Tactical Buy China
Recovery moderating and skewed towards
manufacturing, with eroding stimulus
US trade war: less tariffs, more multilateral
pressure & non-tariff barriers
Steep correction cleaned up excess
valuation; ST catch up (+5%?) likely
Neutral- Brazil amid Covid-19 spread
Widespread pandemic
A longer soft patch is probable, while
stimulus package got delayed
Inflation passes through to core CPI,
prompting central bank to tighten.
Bolsonaro’s eroding political support could
limit reforms
Upside from low abs & relative valuation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 49EM Equities – O/W India & Neutral- Russia
O/W India: macro upside past Covid
Pandemics worsening anew
Reforms validated, boosting sentiment, but
implementation will be key
Elevated inflation to cap stimulus leeway
US reflation and supply chain
diversification favors India
Downside risk from high valuation
Neutral- Russia: capped recovery
Rising Core CPI => tighter monetary policy
Oil activity to gain traction, but elsewhere
still sluggish demand and little budget
stimulus (+0.5/+1% of GDP boost?)
Western sanctions risk remain live
Upside risk from oil prices and Valuation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 50EM HC Debt – Neutral overall amid US rate risk
Favor active managers to play dispersion
Reasonably isolated from US rates, but
less than equities:
EM HC Debt in line with DM (YTD)
Non-panic factoring of UST/$ trends
High corr.to UST/$ suggest higher volatility
LATAM & EMEA ~ 2/3 EM debt
Modest & uneven spread tightening
Valuation close to fair; possible compression
(~20bps in BZ, RU, INDO, PH)
Issuance seasonally strong, flows paused
No pending major default (ex Arg)
Still provides credit diversification
Higher yielder look more sheltered, provided
risk aversion stays stable Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 51COMMODITIES
MARKET RESEARCH >> INVESTMENT STRATEGY 52Commodities: uneven
sensitivity to US rates
Drag from higher rates volatility likely
transitory (unless Fed shifts policy)
Cyclical commodities typically tend to
navigate higher rates
More challenging for Gold
MARKET RESEARCH >> INVESTMENT STRATEGY 53O/W Copper amid strong macro tailwinds
Expecting a spike at $10000/t
Conducive macro backdrop
Better growth, US reflation, rebound in
construction (esp. in the US) and auto
Inflation hedging; Market liquidity
Copper in shortage in 2021
China demand to be relayed by RoW
Structural trends in electronics, EV,
decarbonization remain intact
Supply (Chili, Peru, China; US …) to
resume slowly; new projects for 2022
Global inventories already tight
Prices could breach new highs
Signs of shortage stress: backwardation,
dispersion across regional markets
Stretched long positions would last
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 54Tact. Buy Oil: tight supply favors
higher prices
12M Target $75
Geopolitics becoming oil adverse (thaw
in Iran-US relations)
Large pent-up demand at time of high
seasonal demand (transport, A/C etc.)
Macro tailwind: Reflation, Infrastructure
spending, Inflation hedging
Technical factors to amplify ST spikes
(backwardation, liquidity)
Possible spike at $75 amid US reflation
Cooler prices in H2 as OPEC+ ramp up
output (spare capacities > 6.5mbd)
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 55Neutral+ Gold: mixed fundamentals, tactically driven
12M Target $1800 per ounce
Mixed macro backdrop
(+) Alternative to cash (neg. yield debt
~20%) supportive but less so
(+) Physical mkt improvement (jewelry,
electronics), partially offset by ▲ output
(-) Lower tail risk from vaccine & ongoing
recovery (though uneven)
(=/+?) Stimulus sustainably inflationary?
(=/-) rangy USD, ST positive tilt
Flow rotation could shift gold features
ETF flows less active than in 2020
Physical and CBs (which trashed gold in
H2 20) could both be more decisive
Correlation to real yield & USD could
intensify as rate volatility surges
Macrobond, Lyxor AM
Healthier technicals
MARKET RESEARCH >> INVESTMENT STRATEGY 56Agenda
Apr 27: BoJ meeting with outlook
Apr 28: FOMC
Apr 30: European National Recovery & Resilience plans to be
submitted
May 6: BoE meeting with inflation report
May 6: Scotland general elections
Jun 10: ECB with projections
Jun 16: FOMC with projections
Sept 26: German federal election
Before Oct 22: Japan parliamentary election
MARKET RESEARCH >> INVESTMENT STRATEGY 57Our 3M Views
MARKET RESEARCH >> INVESTMENT STRATEGY 58APPENDIX
MARKET RESEARCH >> INVESTMENT STRATEGY 59US ST headline inflation indicators ticking up
Macrobond
Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 60US Budget reconciliation Budget process
1. President submit a budget request to
Congress
Reconciliation => only a simple majority
needed in Senate (and not the 2. Congress passes its own budget
standard 60 votes) and no need of resolution (that must be voted by both
getting rid of the Senate filibuster House & Senate)
(obstruction to prevent a measure from The Resolution does not include specific
being brought to a vote in the Senate policy changes) but can contain
by endlessly speaking on a subject) Reconciliation instructions
Democrats can use 2 Budget allow for a budget-related bill to pass with
simple majorities in House & Senate
Resolutions (FY21 and FY22) since no
budget resolution was passed for FY21 Committees can be ordered to reduce or
increase deficit, spending or revenues
2/3 Reconciliation bills likely: on Covid Resolution can split into 3 reconciliation
stimulus if a bipartisan deal fails ; on bills (spending + revenues +debt limit)
Biden’s core economic agenda ; and Reconciliation drawbacks: restrictions to
possibly on debt limit expansion likely prohibit minimum wage increase and
other Biden’s pro-union labor agenda
MARKET RESEARCH >> INVESTMENT STRATEGY 61SPX record concentration
AAPL, MSFT, GOOGL, AMZN, FB, BRK/B, JNJ, JPM, XOM
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 62Signs of froth, limited overall threat for now
Short squeeze on GME when shorts >
100% float, a rare occurrence
Little transitory impact on financial
stability
No change in monetary & fiscal support
Likely regulation to address the
gamification of retail investing
Multiple signs of frothiness
non profitable companies trading at
extreme price to sales (Tesla, Airbnb …)
Equity supply from young unprofitable
companies to surge to >20% of their
current market cap
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 63Sector Performance & Valuation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 64Value vs. Growth through sector recommendations
Media = Facebook+Google+Netflix+Twitter ; Retailing = Amazon
S&P 500
Pure Growth Pure Value
Industry Groups
Energy 0.0% 11.4%
Materials 0.3% 1.8%
Capital Goods 0.2% 5.7%
Commercial & Professional Serv 0.5% 0.0%
Transportation 0.2% 0.0%
Automobiles & Components 4.2% 2.4%
Consumer Durables & Apparel 0.0% 1.2%
Consumer Services 0.4% 0.0%
Retailing 11.9% 0.9%
Food & Staples Retailing 0.0% 4.3%
Food, Beverage & Tobacco 0.3% 1.9%
Household & Personal Products 0.0% 0.0%
Health Care Equipment & Servic 1.5% 6.8%
Pharmaceuticals, Biotechnology 2.9% 0.4%
Banks 0.2% 25.7%
Diversified Financials 1.1% 17.3%
Insurance 0.0% 7.1%
Real Estate 0.0% 0.7%
Software & Services 23.2% 0.1%
Technology Hardware & Equipmen 15.1% 1.6%
Semiconductors & Semiconductor 7.2% 0.0%
Telecommunication Services 0.0% 4.0%
Media & Entertainment 30.8% 4.1%
Utilities 0.0% 2.7%
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 65O/W S&P500 Banks amid cyclicality & steeper yield curve
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 66O/W S&P500 Healthcare Equipment & Services
Support from Covid-19
crisis & Biden’s policy
agenda
Earnings upside beyond
the current +9% expected
in 2021
Valuation not cheap
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 67O/W S&P500 Utilities
To be supported by green
capex
Dividend yield @3.25%
Attractive valuation
Little downside risks
A contrarian play in early cycles
Vulnerable to rising rates &
inflation
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 68US Small versus Large: downgraded to Neutral late February after
an eye-catching relative rally
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 69EM Equities: China concentration & froth
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 70Bitcoin: not yet the “digital gold”
Volatility: recent 20% correction,
possibly originated in Asia
Distrust: “(Bitcoin) is a highly speculative
asset, which has conducted some funny
business and some interesting and totally
reprehensible money laundering activity”
ECB President Lagarde, 13 Jan 2021
Risk that regulatory regime could turn
more unfriendly (Turkey banned cryptos
for payment)
Stable and limited issuance that cannot
be devalued by Central Banks
Greater acceptance as a store of value
(Robert Kaplan, President of Dallas Fed)
and an investment option (Lo BI, PBoC
deputy governor) Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 71Bitcoin: not yet the “digital gold”
Highly volatile and still >0 correlated to risk assets
Macrobond, Lyxor AM
MARKET RESEARCH >> INVESTMENT STRATEGY 72CONTACT DETAILS
Jeanne Jean-Baptiste Philippe
Asseraf-Bitton Berthon Ferreira
Head of Market Research Senior Strategist Senior Strategist
jeanne.asseraf-bitton@lyxor.com jb.berthon@lyxor.com philippe.ferreira@lyxor.com
Eloise
Girard-Desbois
Intern
eloise.girard-desbois@lyxor.com
MARKET RESEARCH >> INVESTMENT STRATEGY 73DISCLAIMER (1/2)
The circumstances in which this publication has been produced are such that it is not appropriate to characterise it as independent investment research as
referred to in MiFID and that it should be treated as a marketing communication even if it contains a research recommendation. This publication is also not
subject to any prohibition on dealing ahead of the dissemination of investment research. However, Lyxor is required to have policies to manage the
conflicts which may arise in the production of its research, including preventing dealing ahead of investment research.
This material has been prepared solely for informational purposes only and does not constitute an offer, or a solicitation of an offer, to buy or sell any
security or financial instrument, or to participate in any investment strategy. This material does not purport to summarize or contain all of the provisions that
would be set forth in any offering memorandum. Any purchase or sale of any securities may be made only pursuant to a final offering memorandum. No
advisory relationship is created by the receipt of this material. This material should not be construed as legal, business or tax advice. A more robust
discussion of the risks and tax considerations involving in investing in a fund is available from the more complete disclosures incorporated into the offering
documentation for such fund.
This material has not been prepared in regard to specific investment objectives, financial situations, or the particular needs of any specific entity or
person. Investors should make their own appraisal of the risks and should seek their own financial advice regarding the appropriateness of investing in any
securities or financial instrument or participating in any investment strategy. Before you decide to invest in any account or fund, you should carefully read
the relevant client agreements and offering documentation. No representation is made that your investment objectives will be achieved. This material is not
intended for use by retail customers.
Any descriptions involving investment process, risk management, portfolio characteristics or statistical analysis are provided for illustrative purposes only,
will not apply in all situations, and may be changed without notice. Past performance is not indicative of future results, and it is impossible to predict
whether the value of any fund or index will rise or fall over time.
While the information in this material has been obtained from sources deemed reliable, neither Société Générale (“SG”), Lyxor Asset Management S.A.S.
(“Lyxor AM”) nor their affiliates guarantee its accuracy, timeliness or completeness. We are under no obligation to update or otherwise revise such
information if and when it changes. Any opinions expressed herein are statements of our judgment on this date and are subject to change without notice.
SG, Lyxor AM and their affiliates assume no fiduciary responsibility or liability for any consequences, financial or otherwise, arising from an investment in
any security or financial instrument described herein or in any other security, or from the implementation of any investment strategy. Lyxor AM and its
affiliates may from time to time deal in, profit from the trading of, hold, have positions in, or act as market-makers, advisers, brokers or otherwise in relation
to the securities and financial instruments described herein. Service marks appearing herein are the exclusive property of SG and its affiliates, as the case
may be.
Hedge funds may invest in futures and other derivative instruments. Futures trading and other derivatives may permit extremely high degrees of leverage
and expose the funds to, among other things, volatility, market illiquidity, market risks, legal risks and operational risks. Hedge funds may be exposed to
risks relating to non-domestic markets, including, without limitation, risks relating to currency exchange, tax, lack of liquidity, market manipulation, political
instability and transaction costs. An investment in a hedge fund is subject to a total loss.
MARKET RESEARCH >> INVESTMENT STRATEGY 74DISCLAIMER (2/2)
This presentation contains the views of Lyxor AM analysts and/or strategies. The views espoused in this presentation may differ from opinions and
recommendations produced by other departments of SG.
Note about Indices: Indices are not available for direct investment. A comparison to an index is not meant to imply that an investment in a fund is
comparable to an investment in the funds or securities represented by such index. A fund is actively managed while an index is a passive index of
securities. Indices are not investable themselves, and thus do not include the deduction of fees and other expenses associated with an investment in a
fund. Not all the funds that comprise indices cited herein are suitable for US Investors as a result of, among other things, the implementation of the Volcker
Rule. Please see the offering documentation for these funds for more details.
Notice to U.S Investors: Any potential investment in any securities or financial instruments, the categories of which are described herein, may not be
suitable for all investors. Any prospective investment will require you to represent that you are an “accredited investor,” as defined in Regulation D under
the Securities Act of 1933, as amended, and a “qualified purchaser,” as defined in Section 2(a)(51) of the Investment Company Act of 1940, as amended
(the “40 Act”). The securities and financial instruments described herein may not be available in all jurisdictions.
Investments in or linked to hedge funds are highly speculative and may be adversely affected by the unregulated nature of hedge funds and the use of
trading strategies and techniques that are typically prohibited for funds registered under the ’40 Act. Also, hedge funds are typically less transparent in
terms of information and pricing and have much higher fees than registered funds. Investors in hedge funds may not be afforded the same protections as
investors in funds registered under the ’40 Act including limitations on fees, controls over investment policies and reporting requirements.
Notice to Canadian Investors: Any potential investment in any securities or financial instruments, the categories of which are described herein, may not be
suitable for all investors. Any prospective investment will require you to represent that you are a “permitted client,” as defined in Canadian Regulation
National Instrument 31-103, and an “accredited investor,” as defined in National Instrument 45-106. The securities and financial instruments described
herein may not be available in all jurisdictions of Canada.
For more information, US and Canadian investors and recipients should contact Lyxor Asset Management Inc., 1251 Sixth Avenue, New York, NY 10020
or invest@lyxor.com.
Notice to U.K. Investors: This communication is issued in the UK by Lyxor Asset Management UK LLP, which is authorised and regulated by the Financial
Conduct Authority in the UK under Registration Number 435658.
Source: This document has been prepared by Lyxor Asset Management S.A.S., 17 cours Valmy, 92800 Puteaux. Lyxor AM is a French management
company authorized by the Autorité des marchés financiers and placed under the regulations of the UCITS (2014/91/UE) and AIFM (2011/61/EU)
Directives. Lyxor AM is also registered with the US Commodity Futures Trading Commission as a registered commodity pool operator and a commodity
trading advisor.
MARKET RESEARCH >> INVESTMENT STRATEGY 75You can also read
