May brought an unusual accumulation of potentially disruptive political factors, in the face of which equity markets remained strangely unmoved: a fresh outbreak of ‘Trump fever’ in the USA, with the withdrawal from the Iran nuclear deal and the opening of a trade war with America’s allies (?) in Europe, renewed violence and tension around the Palestinian question, the uncertain, but very real, outcome of the Italian elections, the removal of the Spanish Prime Minister, fears over the Turkish debt... the list goes on.
Under such circumstances, growth (of 2.1% for the S&P 500 in the US) or resilience (-0.1% for the Stoxx 600 in Europe) in equity indices may seem surprising. With a background of sound macroeconomic prospects, confirmed most recently by the OECD (global growth of 3.8% this year, with growth of 2.2% in Europe), markets focused particularly on currency and interest rate trends. US 10-year rates eased to 2.76%, from a peak of 3.11%, the German bund rate fell from 0.56% to 0.35%, whilst Italian government bond rates rose from 1.8% to 3.1%. At the same time the upward pressure on the euro eased, as it fell from $1.25 to $1.17, a possible sign of a return to a more normal dollar exchange rate that will be welcomed by European businesses.
A situation where US short-term rates are getting close to the average dividend yield, and where prices could flare up if oil prices rise as a result of the situations in Iran and Venezuela, nevertheless calls for watchfulness and the primacy of the precautionary principle in asset management. Application of this principle supplementing the discipline in investment and disinvestment that is essential to our management process has resulted us scaling back the equity exposure of our Rouvier Valeurs compartment, from 83% to 81%, whilst the defensive core of Rouvier Europe has been strengthened.
The defensive nature of the Rouvier Valeurs compartment worked in its favour over the past month, with a gain of 1.8% (1.1% since the beginning of the year), whilst the additional volatility in European markets over the month, with the twists and turns of the Italian drama, helped its hedged version, Rouvier Évolution, which was up 2.2% over the month. The more aggressive stance of Rouvier Europe hampered its performance over the month, which it ended down 1.6%. Rouvier Patrimoine was virtually stable for the month (-0.1%), as it is for the year to date (-0.3%), against a bond index that is still in negative territory (-0.9%).