8:22 am - Friday November 28, 2014

How to Reconcile Strategic and Tactical Allocations in a Flexible Management?

The new market reality is characterized by a frequency of market events more sustained, and therefore, a sustained higher volatility. Asset managers can adapt to them, by incorporating into a flexible, permanent equilibrium involving strategic asset allocation and tactical asset allocation.

For two long years, the new configuration of the stock markets disconcerted investors, abruptly confronted with a global economic environment in total flux. Most developed countries realize that their business model, social and budget is now out of breath. Decades of growth artificially maintained through the debt have plunged the finances of these countries in the red and have substantially eroded their competitiveness. In Europe, the need to engage the debt through fiscal austerity plans and major social reforms, even more difficult to impose standards that they finally bury war boom of economic agents which had finally get used unreasonably. In the U.S., the financial crisis is substantially equivalent, household debt and more. But unlike the euro zone, the U.S. continues to stimulate their economies through stimulus plans public and especially by money creation, deliberately delaying the implementation of fiscal reforms. In turn, emerging countries need to ensure sustainable growth by negotiating the tricky transition from an economy based on investment and exports, to an economy based on domestic consumption of new middle classes.

These break simultaneous structural, rather logically impacting the behavior of equity markets. Investors have to live with volatility levels rarely equaled, events closer to markets and market cycles much shorter. Evidenced by the sustained high levels of volatility observed in the markets reflecting a strong sense of risk aversion. Investors must now deal mainly with no clearly identifiable uptrend long term.

The market imposes new deal she resolutely turning its back on risky assets? No, because investment opportunities are, however, numerous, and offer some historical perspective of performance. In addition, there are fewer safe havens ultimate, and they report a negative real return.

Rather it is to adopt an active management and diversified across multiple asset classes, adapted to the new reality of financial markets.

Today, the sequences of stress inherent in them, require greater adaptability in a short time horizon, to adjust in real time the degree of exposure to asset portfolio. It is the stated goal of “flexible management”, which superimposes strategic and tactical allocations. The strategic allocation is defined in the medium / long term, responding to market trends over a period of one year in general.

The macroeconomic framework and the context of overall market is defined and focuses on the structural vision of the evolution of all risky assets. The result is a heart of conviction portfolio, whose shape will evolve slowly. The tactical allocation allows it, starting with a daily analysis of markets, to continuously adjust the strategic choices that were made, particularly by modulating the delta positions resulting actions.

The uranium industry is one of many examples of investments that include the stocks with valuation levels are particularly low, with high growth prospects, regardless of the growth rates of world economies. The rising price of uranium should be supplied from the structural demand China and the U.S..

The poor image of nuclear energy since the tragedy of Fukushima, which led to announcements of progressive dismantling of certain plants in Germany and France had the effect of lowering excessively sector actions. This analysis leads to invest in this sector to keep it in the heart of the portfolio, while maintaining his cover by indexical positions vendors, through flexible management.

Continuous interaction between the two types of allocation offers the manager the flexibility to revise its portfolio at any time if the events of markets dictate. A potential reactivity welcome when you consider that the frequency of events markets is no longer supported. The latest ones? The market rally spurred by the European Summit, quickly exhausted by the confirmation that the ECB would not intervene further in favor of asset purchases bonds on the euro area. Result Eurostoxx50 lost nearly 4% between 4 and 6 July, showering the hopes of investors who were willing to believe in a possible rally in equity markets.

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