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Investors in Monaco take refuge in large caps

Nine in 10 delegates at the Expert Investor Monaco forum held earlier this week expect another market correction of more than 10% this year. Even though most fund buyers in Europe that were asked the question this year expect another market slump before the end of the year, Monaco by far has the largest percentage of bears. However, as Julie Dickson, a global equity specialist at Capital Group, it’s of course another question whether they also expect markets to be down 10% by Christmas. After all, markets recovered quickly from earlier recent bear markets.

 old rush in onaco Gold rush in Monaco

When our researcher visited Monaco earlier this spring, gold was the talk of the town. Local investors have been stocking up on the yellow metal, partly in an effort to reduce the correlation of their portfolios to equity and bond markets. But as you can see in the chart below, Monaco’s fund buyers also have a strong preference for large caps now, as this type of stocks tends to have slightly lower volatility than small caps and is a little less sensitive to an economic downturn.

Fund managers speaking at the forum were taken aback somewhat by the delegate bearishness. “I’m surprised people are so negative. Is it because markets have rallied so much and they expect a pullback? Or are there worries more structural?,” wondered Nish Popat, manager of the Neuberger Berman Emerging Market Corporate Debt Fund.

The Brexit referendum next month could be a trigger for such a market correction, but the vast majority of delegates believed the British will not dare to go it alone, thus opting to stay in the EU.

The Trump effect

A possible election of Donald Trump to the US presidency, is seen as a bigger tail risk, even though its effects on the market differed widely between the different speakers. While event chairman Jeroen Vetter suggested he will move to Mars if Trump gets his hands on the launch codes of the US nuclear weapons, Neuberger Berman’s Popat a Trump win would actually benefit markets.  

“Trump is a capitalist, so if he does get elected equities will soar because he will do what’s right for companies,” he said. Amit Kumar, manager of Columbia Threadneedle’s long/short American Absolute Alpha fund, disagreed, arguing the uncertainty surrounding the policies Trump will implement once elected would drive markets down.   

“CEOs from Fortune 500 companies tell me his inconsistent policies create uncertainty in the markets,” said Kumar. “For example, the healthcare sector went down after Trump won the Indiana primaries. This was not because Trump has said anything negative about it, but because the market doesn’t know what he would be going to do.”

Click here to see a full overview of delegate voting results from Expert Investor Monaco.

Here you can see a selection of photos taken at Expert Investor Monaco.

Part of the Mark Allen Group.