A good year for the global economy, 2017 had its share of problems – weather events, geopolitical tensions and persistent and legitimate concerns over the exit route from low interest rate regimes – but none of these put much of a dent in financial markets, which continued to gain ground. The MSCI Europe Index (total net return) was up 10.2%, whilst its global equivalent gained just 7.5% in euro terms, due to the rise in the euro.
With earnings multiples of 15.2 and 18.5 respectively, European and US markets are now clearly trading above their long-term averages. Although not yet excessive, such levels call for vigilance, particularly as they price in growth prospects which, though supported by the IMF and the majority of economists, leave little scope for further upward adjustments. In the US market there is the specific risk that the impact on growth of Mr Trump’s tax plan – over and above the immediate windfall effect on 2018 earnings – will fall short of expectations.
Performances from the various compartments of the SICAV, measured at 31 December 2017, were more than acceptable.
Rouvier Patrimoine continues to be managed with a primary focus on capital protection. Its core bond element gained 0.5%, against an index that remained in negative territory for the year, losing 0.4%. The 17% net gain in the equity portfolio, which for reasons of prudence was scaled back to 16% of the total portfolio at the end of December, meant that the fund closed the year with an overall gain of 2.4%.
Rouvier Valeurs gained 13.7% over the year. This performance was achieved despite the reduction in its equity exposure from 87% at end-2016 to 81% at end-2017, and whilst retaining a discount of more than 12% to its intrinsic value. Meanwhile, its hedged version Rouvier Évolution gained 8%. The derivative cover proved more expensive than in the previous year, but represents a growing advantage as market valuations come under strain.
Rouvier Europe closed a difficult year, affected by the collapse of Banco Popular, with a gain of 8.7%. At the end of the year, with a 2.1% gain in December against an index up just 0.8%, it regained its original vigour: it had risen 9.5% by end-May, against a rise of 8.9% for the index. It remains at a discount of over 18% to its intrinsic value, a good sign for 2018.
Over the coming year, at a time when vigilance will be key, the assessment of companies’ fundamental value, in a concrete relationship to their economic performances, remains more than ever the best protection for investors, and this is what we will continue to strive to achieve in the selection of stocks whose sustainability we believe allows us to make an accurate assessment of their fair price.