Waiting for the catenaccio moment
Fabrizio Quirighetti (pictured) is co-head of Multi-Asset and CIO at Syz Asset Management.
As the kick-off for Euro 2016 approaches, I’m tending to feel a bit like a coach, and hopefully a successful one at that – more of a Ranieri rather than a Domenech so to speak.
As I gauge the market’s strengths and weaknesses and devise an optimal asset allocation, my main priority is losing neither my clients’ nor my own shirt.
My current challenge is that I face a playing field in poor condition, what with economies that are still muddling through, a lack of growth momentum, agents overloaded with debt, ineffective monetary policies and quite a few political uncertainties lying ahead.
Or to put it another way, I am feeling somewhat like Cantona playing with a deflated ball against a zombie team on an unknown planet. Not easy!
When I start looking at the assets at my disposal is when I get really concerned.
Cash now tends to have a cost (a bit like playing with a Spanish goal keeper in the 80’s). Government bonds are so expensive that they can’t defend my portfolio much and are at risk of scoring a big home goal. Equities don’t have enough of a valuation buffer, (let’s call it “insufficient technical skills”), to score in these difficult and uncertain markets.
On top of that, these asset classes sometimes struggle to play together when correlations change, or when they fall out of their positions in my portfolio due to sharp and significant sector rotation.
Last but not least, the dollar is behaving like a corrupt referee, hanging on every word and act of the Fed. So that leaves me with hoping that the high yielders, emerging market debt and convertibles (the midfield players), won’t be too bad. Relative to the rest of the team, that is.
So I am faced with a real challenge: how to allocate efficiently when everything is expensive and uncertainties are so plentiful?
My current tactical approach is “catenaccio”: I’m waiting for a better entry point, perhaps by mid-June, when uncertainties around the Fed will clear up, (note that we don’t expect a hike), and just ahead of a likely no-vote on Brexit.
This may provide an opportunity to steal the ball and go for a fast break to bring attractive risk-adjusted performance for the year. Until then, I will just turn on the TV, grab a beer, enjoy the games and try to avoid a red card from my wife.