Mutuactivos see value in private fixed income with high credit quality
Asset management has been complicated by the difficult economic situation we are currently experiencing. Predictably, the Covid-19 crisis will generate a strong recession at the global level that will entail a significant drop in corporate profits and an increase in debt ratios, both in companies and in governments. So they estimate it in Mutual assets, the investment fund manager of Mutual Madrileña, where they are taking advantage of the opportunities that arise in the market to reposition their portfolios.
Specifically, the managers, who faced this crisis with quite conservative portfolios, They have taken advantage of the declines in recent weeks to invest in both credit and equities in high-quality companies with good equity. However, given the uncertainty situation, they maintain their prudent bias and a high percentage of liquidity in their funds.
Emilio Ortiz, investment director of Mutuactivos, affirms that the recent falls in the markets have served to increase risk premiums in most assets and, consequently, to significantly improve their medium-term potential. The low liquidity of the markets is causing investors to take refuge in the most liquid assets. “This process is leading to an expansion of liquidity premiums, improving the potential for profitability for those investors who have the ability to invest with a medium-term horizon,” says Ortiz.
Attractive in private fixed income
Since Mutual assets They believe that private fixed income, which before the fall seemed an asset with little potential, now offers quite attractive. “The current spreads already discount a scenario of a strong economic slowdown and an increase in defaults,” says Emilio Ortiz. In his opinion, taking as a reference the experience of other similar economic crises, the current analysis models indicate that, with a medium-term time horizon, the profitability by coupons will be more than enough to compensate for possible credit losses.
“In addition, this time, the credit has strong support from central banks (which are buying bonds and even ETFs in the market) and from governments (which are extending financial aid to the companies most affected by the crisis)”, Add.
Much of the purchases made by Mutuactivos in the segment of the private fixed income have been undertaken in the primary market, taking advantage of the fact that many companies have gone out in search of financing, offering interesting bonuses to investors. Within the financial debt, although they see value in the AT1, they prefer the LT2 debt, less exposed to the risk of extension or non-payment of coupons.
Less positive are with respect to the public debt of the periphery. “Despite the expansion of risk premiums, it seems to us that peripheral debt is expensive in relation to corporate debt. We are concerned about Italy’s growing public debt, which could approach 150% of GDP after the crisis. With this level of indebtedness, any sustained increase in the Italian risk premium could once again cast doubt on the sustainability of its debt in the medium term, ”says Emilio Ortiz.
Mutuactivos have also decided to reduce exposure to inflation. “In the coming months it will continue to be very low. On the one hand, because the increase in unemployment should reduce the wage pressure; on the other, because the fall of energy prices have a deflationary effect which will last as long as a balanced situation is not achieved in the crude oil market. In addition, inflation swaps have lost effectiveness as a hedging tool for duration risk, ”Ortiz analyzes.
In equities, the manager is more cautious. Mutuactivos consider that, after the recent rebound, the stock markets are discounting a recovery scenario that leaves little room for error. “Our models suggest that profit falls could be around 20% and 30% in the US. and Europe, respectively. If so, in the coming months we will experience a barrage of Profit warnings and downward revisions in profit expectations by companies and analysts, ”says Ortiz. This context of sharp falls in profits, higher financing costs and lower share buybacks is not conducive to equities, which, on the other hand, it will benefit from central bank support to the credit market.
Within equities, Mutuactivos see a fairly clear investment opportunity in Eurostoxx dividend futures. At current prices they are discounting a permanent cut close to 40% compared to the starting situation. “Although in the short term this cut is going to be a realityIn the medium term, as the economy and profits recover, dividends should rise. In any case, the starting point is so low that the risk is quite limited, “says Emilio Ortiz.
As for specific companies, he sees value in companies with good business models and robust balance sheets. In recent weeks, they have bought titles from Red Eléctrica, Enagas, ASML or Aena.
Dollar lower and gold higher
Regarding the dollar, in Mutuactivos consider that in the medium term it should depreciate against the euro. As already happened after the 2008 crisis, the Fed is being much more aggressive in its decisions than the ECB. The lower rate differential between the two economic areas should favor the recovery of the euro as the perception of risk decreases.
This increased aggressiveness of the Fed should also be favorable for gold or Tips, which, as real assets, tend to behave well in times of strong monetary expansion, says Ortiz.