Markets and risk
As might be expected, given his stance on cash, the global balanced portfolio, in US dollar and euro terms, is currently “fairly underweight equities”.
“The macroeconomics are relatively positive globally but there is a huge set of political risks ahead of us in Europe and in the US. We feel a bit uncomfortable with that. The markets, especially the risky asset markets, have been too complacent with these political risks.”
He cites political instability in France as an example, with the rise of the Far Right, which he does not like. “The economy looks a bit better. It is a bit of a shame that we have this instability at this point. To attract investment, you have to offer stability.”
In contrast, he feels the story in China is quite positive. He says the economics, politics and timeline for reforms are more aligned, in the sense that they are stable so that any reforms will be followed through.
Lamotte explains that the investment story in Japan – where he has a 3% weighting, currency hedged, within the 30% equity allocation– makes sense. He says: “Japan postponed a VAT increase and it has quite a low unemployment rate at about 4%, which Europe should be quite jealous of.”
More generally on the currency front, he believes all portfolios should have US dollar exposure somewhere. “An investment portfolio without dollars does not make sense to me.”
One investment vehicle he dislikes, however, but does use in certain circumstances is the exchange-traded fund (ETF), which he feels are too remote from the real assets in which they invest.
He uses ETFs for tactical asset allocation when he wants to enter a market quickly. Once he has entered a market, his team drills down to find actively managed products with which to replace the vehicle.
“Over coming days, the teams will be working to replace the ETF with more active management products. Then the investment in the ETF will be reduced.”
But he emphasises that the teams at Indosuez are not traders; their tactical allocation moves are not made daily or weekly but over the longer term. “I would say we are more long-term investors.
“I always say I am a better seller than a buyer, but I have guys in my team who are better buyers than sellers. One thing we are quite good at is weathering volatility. We tend not to panic when the market goes against us.
“My experience over the past few years has been that we have been quite good at keeping our position, especially when people, and sometimes my bosses, were screaming, ‘We have to sell everything! It’s a catastrophe! It is the end!’ I say: ‘No, we have to hold.’ And in these situations it has proved in general, to be the bottom of the market.”
