The impact of uncertainty and war on financial markets

In periods of global instability, we prefer more defensive portfolios with a focus on value stocks. After the 2008 crisis, the US rate went down, reaching negative real rate levels and growth companies rising at a very high rate.

Currently, we find the sector value (value) in minimum yields and the sector growth (increase) in maxima. So far this year, value sectors have been doing catch-up (catch upto), narrowing the difference by approximately 1,100 basis points.

There is a paradigm shift, in a context of possible rises in the US rate and the war in Russia that creates uncertainty where the eValue companies project a better performance, this being a defensive sector, with much more mature companies that pay dividends and collide well with the US rate.

If investors want to hold a more defensive portfolio with less beta, it is better to choose a safe haven sector. The energy sector may be a good option given the disruptive events that are taking place in this sector, which can be captured via ETFs XLE (33.78% YTD) or via some funds from recognized houses.

On the fixed income side, we prefer to get crazy in short US treasuriese, which are usually a good refuge in the processes of flight to quality. This process occurs in periods of crisis such as the Russian war or covid-19, where the market deleverages risky assets (equity and fixed income with longer duration), and invests in the American curve, causing their yields to fall.

In this context where the dollar continues to be a store of value in the world and the investor looks for these US Treasury bonds, we believe there will be a flight to quality process. For this reason, we recommend US Treasury bonds in particular, with low duration, since in recent times the probability that the Fed will raise the rate has been increasing and these short bonds have less effect on their price.

The duration concept is the sensitivity to the interest rate. For example, simplifying: If the US rate rises 1%, the price of a bond with a duration of 1 year falls 1%. But, a bond with a duration of 10 years, when the US rate rises 1%, its price falls 10%. That is why the concept of duration is important since, being positioned in the short part of the curves, the rate does not have as much impact on the price of these bonds and the rate compensates for this risk.

For the most aggressive profiles, we recommend looking for good credits in Latin America, solid companies, with attractive rates that compensate for the risks, but always with the focus on the short part of the curve, to prevent the duration from having a large effect on the investment made. . The Latam short bond universe includes rates ranging between 4% and 8%, attractive rates in this context.

*Balanz Global Asset Allocator of investment ideas

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