e-fundresearch.com: What personal insights do you draw from the market developments in 2017?
Gilles Sitbon: The lack of volatility we witnessed in 2017, combined with the fact that we are entering the eighth year of a bull market, create an impression of late cycle rally. On the positive side, the start of central banking policy normalization, together with a more synchronised global growth, create the basis for a more sustainable market development in the years ahead.
e-fundresearch.com: Are you more optimistic or pessimistic today than a year ago and why?
Gilles Sitbon: We are as optimistic as before. Better economic growth, as well as tax reforms in the US, will probably be offset by increasing inflation. The first signs are provided by multiple large companies having recently announced significant wage increases.
Still, as long as 10 year US rate remains below 3%, we think that the current growth path remains realistic.
e-fundresearch.com: Fund performance in 2017: Which trends have you benefited from in particular, where have there been challenges?
Gilles Sitbon: The fund returned 7.7% performance over 2017, with below 6% volatility. A basket of cash compounders with balance sheet optionality, such as InterXion, Worldline, or Total, delivered good performance. Some of our positions were subject to takeover (Nets, Zodiac), which of course helped. We also benefited from good developments in turnaround stories, (Nomad).
e-fundresearch.com: Which trade or positioning do you particularly like to look back on?
Gilles Sitbon: Looking back on trades is only good as a learning tool. Otherwise we prefer to look forward. One lesson to be drawn maybe is to be ready to let your winners run. It is always tempting to sell too soon. This tends to be the bias of many value investors.
e-fundresearch.com: With respect to the overall global market development: Which consensus views give you the most cause for concern in the current environment?
Gilles Sitbon: That investors probably do not price correctly the number of rate increases for next year.
e-fundresearch.com: Looking to the future: What are the key issues for your asset class in 2018 and how do these events influence the positioning of your portfolio?
Gilles Sitbon: The biggest issue for 2018 is the return of inflation, and the associated rate increases. If this were to happen too fast, it could create headwinds for stock markets. Combined to this, the fact that we live with an aging bull. That being said, we see no signs of a crack yet.
