Update on... Echiquier ARTY SRI | July 2025
Louis Porrini, Fund Manager, Uriel Saragusti, Fund Manager, and Michel Saugné, CIO, La Financière de l’Échiquier (LFDE)
After a long period of abnormally low interest rates, Echiquier ARTY SRI is once again drawing performance from its bond allocation, one of its traditional sources of return. In this environment, the fund’s strategy is based on a balanced allocation between the two asset classes, supplemented by optional hedging against extreme risks to optimise its risk/return profile.
Operations
Shortly after the fund’s 17th anniversary at the end of May, Echiquier ARTY SRI’s net asset value reached an all-time high. In increasingly erratic equity and bond markets, the fund’s construction emphasises risk management, capital preservation and visibility.
The fund’s consistently high allocation to fixed income assets, combined with actively managed equity hedging, helped it withstand recent episodes of market turbulence, particularly around Liberation Day. This was a short-lived dip, with net asset value quickly returning to its previous level. During this period, dynamic hedge management enabled the fund to absorb part of the equity market’s decline while benefiting from the equally sharp rebound.
The possibility of using index options aims to protect the portfolio’s performance in the event of a sudden correction in the equity markets. This marks a major shift towards greater convexity and agility, while maintaining tight control over the allocated budget. Since the start of the year, equity market exposure has fluctuated between 13% and 28%,[1] with a positive impact on the fund’s performance and volatility.
Echiquier ARTY SRI’s equity allocation maintains a clear European bias. In an increasingly volatile market environment, we believe that high valuations in the US market – still heavily concentrated in large-cap tech stocks – represent an increasing risk.
At the same time, despite a sluggish economic backdrop in Europe, several sectors stand to benefit from growing awareness among NATO countries, reflected in massive investment plans for the coming years. This paradigm shift in defence spending does not yet appear to be fully reflected in earnings growth expectations for the companies concerned.
Against this backdrop, we are maintaining substantial exposure to equity markets, with a strong preference for Europe – and Germany in particular. We have also strengthened certain positions in mid-cap stocks, mainly domestic, which are less exposed to US-imposed tariffs.
In a bond market where risk premiums[2] are pricing in few clouds on the horizon, the bond allocation has continued to increase in quality. Tactically, we believe the equity market currently offers more compelling risk-taking opportunities than the high-yield segment. Conversely, we are finding attractive value in the investment-grade[3] market with moderate duration (4-7 years). The bond allocation’s interest rate sensitivity[4] has thus returned to high levels – around 5 – driven by pressure on long-term borrowing rates following Germany’s rearmament announcements.
Investment strategy
The return of policy rates to clearly positive territory has allowed equity and bond markets to decouple and return to more typical behaviour. While the European Central Bank has cut its deposit rate by 200 basis points (from June 2024 to June 2025), bringing it to 2%, there remains ample room to ease monetary policy further should economic conditions deteriorate.
The bond allocation remains the fund’s first line of defence in the event of a shock. It is the main pillar of the portfolio, representing nearly 70% of total assets, and currently offers a gross annual yield of 3.4%.[5] The equity allocation – 27% of the fund – is accompanied by an optional equity hedge that reduces net exposure by 2 percentage points and is designed to be particularly effective in the event of sharp market declines.