César Gimeno, US equities and multi-asset portfolio manager at MAPFRE AM, provides his analysis and expectations in an interview for Estrategias de Inversión on the current market situation and where to find value in the coming 12 months.
What is your view of the market amid the second wave of COVID-19 and gradual progress toward a vaccine?
We see the current situation as intrinsically volatile. Beyond any short-term news, such as the latest wave of COVID or a possible vaccine, we’re in an environment where information of one type or another will continue flowing and the economy will remain significantly affected. Some sectors are much better positioned, but volatility is here to stay and there aren’t many companies that will be able to use this tailwind to continue growing over the next few years.
How can money be made over the next 12 months in such a complex environment? What types of themes or geographies do you like most?
It’s important to diversify not only geographically but also by asset class. This will be important not only for generating returns but also in managing risk. At MAPFRE AM, we are great analysts of the various trends and genuinely understand them, but it’s important to differentiate growth and increased demand from returns on that demand. We’ve already seen in years gone by how sectors such as personal computing have grown exponentially in a way that destroyed the sector in terms of profitability. Certain themes may currently be in that same situation. It’s important not only to be in the right themes but also aware of the ones that generate value for shareholders and bondholders alike. It’s about diversification, looking beyond themes alone and, ultimately, being very flexible. We’re in a highly volatile environment, and having preconceived ideas about the price of an asset carries considerable risk.
Technology, health companies and sustainable investment have been the major winning trends in 2020. Do you see this continuing over the coming months?
We see sustainability as a trend that’s here to stay. Ultimately, ESG analysis is fundamental to how a company’s business model works. We believe that governance analysis, which is very much in fashion right now, is also fundamental. We need equality policies, professional corporate management teams and the alignment of objectives — that’s fundamental. We talk about social issues in the same way we talk about governance, not so much because it’s on trend but because we believe it matters to companies’ results. And in terms of the dynamics of the technology sector, in the end these sectors are changing continuously and as such will continue to grow. You need different solutions for different problems, and coronavirus is the clearest example of that. This is today’s problem, but looking ahead to the next two years there will be other problems, like the aging population, and something very similar is happening in technology. Its needs are changing in an environment that doesn’t stay stable over time.
What are your current recommendations for more moderate or conservative investment profiles?
Our vision is to focus on diversification. Historically it was relatively easy for low-risk profiles to invest in a relatively secure asset class that generated a reasonable or at least positive return. Today getting a positive return means taking a risk, and the most efficient way of getting that return is by diversifying through different sources. We’re talking about investment in infrastructure and emerging market debt, which, when combined, can get better results for a portfolio.