The sharp rise in prices around the world is the biggest problem facing fund managers today. Mutuactivos, the financial arm of Mutua Madrileña, has decided to take action on the matter and include funds managed by special protections to protect itself from persistent inflation.
Specifically, the entity contracts barter contracts (known in the jargon as swaps) that allow it to obtain profitability in the event that prices continue to rise.
Ignacio Dolz de Espejo, Director of Investments and Product Solutions at Mutuactivos, explains that inflation “will continue to rise for a few months to start declining after winter.” One tail risk is that inflation could end up shifting wages. It’s not our central platform, but we’re covered in case it happens.”
The manager estimates that even though inflation is high, central banks will be too lenient and will allow inflation to stay above interest rates, because in this way governments can shrink debt. “We believe, however, that interest rates will maintain their upward trajectory in the coming quarters, slowly and limited by the strong mass of public debt in the world,” adds Dolles de Espejo.
Stocks hit hardest
- Artificial. The Mutuactivos team considers the manufacturing and consumption sectors to be among the industries most affected by inflation. “In the former case, the weight of the energy cost is too high, and the latter will have difficulty transferring the increase to the final consumer, who has not yet benefited from the salary increases,” says Dolls de Espejo.
- new. Mutuactivos managers consider that stock market corrections in these countries have already been very deep, and they are trading at reasonable rates.
The latest inflation data in Spain, corresponding to October, shows that prices are growing at an annual rate of 5.5%, a level not seen in 29 years. The inflation rate in the euro area was 4.1%.
In addition, in fixed income, the manager still has very little sensitivity to the interest rates in his portfolios, even though he has slightly increased the term, since part of the path they predicted is already done.
In credit, spreads remain minimal, so managers see value only in certain sectors, such as corporate hybrid bonds. “Spreads have barely changed this quarter and we’re still a little underweight. As a result, we have a lot of cash ready to use if credit corrects and gives us a chance,” he points out.
In terms of emerging fixed income, Mutuactivos’ directors are now a little more positive. “We have already seen significant corrections and both interest rates and credit spreads have corrected, so the risk premium offered by these types of assets is now much more attractive,” explains Dolz de Espejo.
They also still keep Chinese sovereign debt in their portfolios. “The country has very important reserves, provides an additional attractive yield and allows us to diversify the weight of government debt in our portfolios by providing non-term sources. In addition, China will value more and more weight in the indices, which is a good opportunity,” he adds.
At Mutuactivos, they continue to view the environment of contained inflation and low interest rates as positive and favorable for risky assets, such as stocks.
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