Update on... Echiquier ARTY SRI
Olivier de Berranger, CEO, co-CIO, Guillaume Jourdan, Uriel Saragusti, Fund Managers for Echiquier ARTY SRI, La Financière de l’Echiquier | April 2024
Expected to be a period of significant economic slowdown, 2023 turned out to be one of the best years for equity markets. Their unexpected gains were triggered by the October announcement by the US Federal Reserve (Fed) that it would cut interest rates in 2024, propelling stock market indices to all-time highs. However, while inflation appears to be stabilising, central banks are now moderating their expectations, suggesting that interest rate cuts may be less pronounced than expected. 2024 could therefore be more volatile than expected, characterised by this monetary uncertainty.
Operations
In the current climate of potential volatility, Echiquier ARTY SRI is taking a cautious approach, limiting exposure to equities to around 20%. This targeted approach is aimed at capturing growth in strategic sectors such as artificial intelligence and healthcare, with companies such as Nvidia, Microsoft, SAP and Novo Nordisk. In addition, the focus on mid-caps – Rémy Cointreau, Beijer Ref – aims to take advantage of their attractive valuations compared with large caps. Finally, our defensive approach is reflected in our positions in robust stocks such as Air Liquide and London Stock Exchange Group. This cautious strategy reflects our desire to diversify the portfolio and reduce the proportion of risky assets in order to strengthen our focus on bonds, which we initiated a few months ago. Echiquier ARTY SRI focuses on yield, with a predominant allocation to corporate bonds (more than 70% of the fund). The strategy aims to achieve a yield of around 4% by lengthening bond maturities, especially when the yield on 10-year German government bonds is around 2.5%. This approach adjusts to market dynamics: we are gradually reducing exposure to subordinated debt and high-yield debt, while maintaining a significant allocation in these segments. Echiquier ARTY SRI’s strategy, with a reinforced investment grade[1] bucket, demonstrates its adaptability and optimises the risk/return ratio. This strategic choice, made in response to the tightening of risk premiums relative to other bond asset classes, illustrates our active management approach, which aims to strike a judicious balance between the growth opportunities offered by equities and the safety provided by bonds. The fund exploits complementarities between asset classes, as demonstrated by the good start to the year in convertible bonds, for which we are maintaining a weighting of 5%.
Investment strategy
The Echiquier ARTY SRI strategy, which focuses on bond yields, is cautious in the face of rising stock market indices. Despite successive record highs, we are taking a conservative approach to equities. However, we are prepared to increase our equity exposure in the event of a market downturn, as we did last September, if corporate earnings growth remains solid. In 2023, we adjusted the duration of our bond portfolio, extending it until October and then shortening it in response to the fall in yields at the end of the year. The rise in yields in February prompted us to increase duration again, to around 4.5 years. This responsiveness reflects our ability to navigate market fluctuations in order to optimise returns while minimising interest rate risk.