Equity markets continued their consolidation during August. The MSCI World and Europe indices (total return net and in euros) both lost 0.7% over the month, putting their gains since the beginning of the year at just 0.7% and 5.5% respectively.
The reason for this clearly does not lie in interim reports from companies, which were not only good, as we saw last month, but which in 80% of cases in Europe either matched or beat market expectations. Moreover, 89% of European companies who have published interim figures have either confirmed or increased their earnings guidance for 2017.
The increased risk aversion we are seeing -- as confirmed by gold prices rising to $1,300/ounce and small outflows of funds from the European and US markets -- is mainly to be blamed on political and psychological factors: the effects of North Korea’s nuclear announcements, and the hope that they were just braggadocio, coupled with the absence of announcements from central banks, which seem puzzled by the fact that inflation is being too slow to pick up -- and lastly, the natural tendency of investors to fear that when things are going well they are going too well, which has resulted in profit taking.
For our part, we believe that earnings growth potential has yet to be exhausted and that many companies, notably in France, are only just beginning to see a return to pre-crisis levels of profitability. Against this background we are particularly interested in ‘domestic’ European companies; such firms suffer little or no consequences from the current strengthening of the euro against the dollar, as investors buy into good macro-economic data. This said, market jitters require us to be increasingly vigilant regarding the companies in our portfolio and as rigorous as ever when looking at new investments. Fortunately, our collegiate investment process naturally encourages such discipline.
The Rouvier Valeurs compartment benefited from its defensive nature in these market conditions and limited its losses for the month to 0.1%, taking its gains for the year to 5.7%. Conversely, the more aggressive stance of Rouvier Europe hampered its performance over the month, which it ended down 1.7%, taking its year-to-date showing to 5% which we expect to improve.
Rouvier Évolution continued to suffer from lower than usual volatility, and its performance for the year so far was unchanged at 2.1%. Rouvier Patrimoine receded by a slight 0.2% over the month, taking its gains for the year so far to 1.5% against a bond index that is still in negative territory.