Instant Market Overview 30th of June

I want to highlight the power of macro before we get into the data. You don’t need “niche” ideas to achieve great investment returns. You can be long countries or sectors and achieve significant gains. Just look at the difference between China and India.

While India’s stock market was ramping another +5.0% in the last month to new all-time highs, China’s Shanghai Composite Index was down -5.7% in the last month. Truly excellent returns from that spread to be gained!

The macroeconomic setup will be all about slowing growth and persistently high inflation. In the previous half of the year, with inflation and growth going up together, it was a lot easier to invest, so I’m very excited to show you how we manage the moves in a way that is superior to the industry standard.

Let's look at the data as it’s all about the economic cycle driven by growth and inflation. After we understand the whole dynamic, we will get into the portfolio that we position optimally for what is to come in the following months.

Growth

It will be extremely challenging for the US to achieve any meaningful acceleration in economic growth compared to last year. Last year’s growth was so strong that improving it would require a 98th percentile move in real GDP based on an observation period going back to 1Q85.

For the bottom half of consumers, we are clearly starting to see the impact of the persistently high inflation on economic growth in the US. Labor & Household Consumption growth continues to cool, slowly, as the real purchasing power associated with savings went negative quarters ago for average income. High Prices + High Interest rates are slowing household demand for high-priced discretionary goods consumption that typically requires financing.

For the top half of consumers, the situation is the opposite. They benefit from rising rates and rising asset prices. As they represent a disproportionately large share of the consumption economy, this is very important for the overall health of the economy.

Inflation

As we have been stating, we see inflation staying high. To watch this unfold, the two biggest drivers of inflation will be housing costs and global shipping rates.

It’s also interesting to note how Fertilizing prices are going up, which is a leading driver of inflation in food prices.

In terms of Shipping Cost, the Shanghai Containerized Freight Index has been running up +79 to +240% Y/Y. It’s important to note that this will enter CPI on a lag, again likely in the back half of the year or early next year and has the potential to add a +1 to 2% tailwind to reported inflation.

Regarding the timeframes, we could get some slight disinflation in the 3rd quarter, which would increase the chances of a September cut and likely set up accelerated rate cut expectations thereafter, as inflation tailwinds begin to re-emerge.

So, how do we set up our portfolio to benefit from these dynamics? 

The Portfolio  

As stated in the introduction, we need to be a bit more dynamic in this sideways market, where growth is starting to slow and inflation is staying high. This requires us to make some critical adjustments to the portfolio. 

As of today we are slightly lagging the MSCI world index which is up 12,7% while we are up 7,9% YTD. As you know you need to look at investments over a longer time horizon and I’m confident in our positioning!

Let’s get into the portfolio!

Utilities Sector (XLU) -2,56% Since Entry 14^th of June

Great sector to be long now that growth is slowing. Very stable and defensive.

Industrial Sector (XLI) will be replaced by Insurance (IAK)

Insurance is a great defensive sector for slowing growth.

Natural Gas will be replaced by Healthcare (PINK)

Healthcare is another amazing defensive position what is sure to pay off in these times of slowing growth.

 Bitcoin (BTC) will be replace by Technology Sector (XLK)

As slowing growth remains the theme, we need to increase the quality of the portfolio. The Tech giants continue to deliver what makes them deserve a place in the portfolio. 

Copper -8,4% Since Entry Fri 24th of May.

Copper builds perfectly on our theme of rising inflation and rise in chip production.

SILVER (SLV) +7% Since Entry Fri 26th of April

Silver is considered to be an inflation hedge and a store of value what makes it perfect for the current macro dynamic.

Gold +11,7% YTD

Gold has been solid historically in the given macro environment, especially relative to the S&P500. It’s a true classic for holding up as a haven asset in higher-volatility environments.

 Germany (DAX) +2,8% Since Entry Fri 19th of April

As we are bullish on Europe, it’s great to have exposure to Germany, which is considered the continent's engine 

Netherlands (EWN) -0,4% Since Entry 14^th of June

As the European Recession ended in Q4 of 2023, The Netherlands is a great place to allocate capital. 

India (INDA) +15,1% YTD

The signal remains bullish on India as its world-leading economic growth is set to hold at these levels, with probabilities pointing towards shallow accelerations in the 2H24 on buoyant domestic demand and government spending as well as strong credit growth. 

I hope you enjoyed this edition of The Minimalist Portfolio. I’m grateful to be outperforming together! 

All the best,
Philippe