Funds leverage the best Stock Market start since 2001

“Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.” This quote from guru Warren Buffett makes sense if you look at what’s happened in the first month of the year, the Stock Market's best start since 2001. Few experts dared to venture that the fiscal year would start off this way, against such an uncertain macroeconomic and geopolitical context and following several months where even the most conservative investors suffered heavy losses.

But that’s precisely what happened. The Ibex 35 and the EuroStoxx 50 have registered an advance of more than 9.7%. On the other side of the Atlantic, the S&P 500 has done so with 5.5%.

Alberto Matellán, head economist at MAPFRE Inversión, pinpoints five explanations for this performance:

• Pleasant surprises from a macroeconomic standpoint. Since the end of December, published data have beaten market expectations without exception, especially in Europe.
• Inflation trending down. This is thanks to the drop in energy prices, which has also had a positive impact on the income statements companies have been publishing these last few days.
• The tone set by the central banks. The “terminal rate” (or the maximum level a rate can reach) hasn’t shifted, even lowering in the last few weeks. This brings relief to the markets that experienced their last scare at the beginning of December from the ECB.
• China’s re-opening. Not only because it has eased its anti-Covid measures, but also because it's applying expansion policies. This is sweeping Europe along, and it’s offering great hope to investors more than anything.
• Liquidity, one of the market’s key factors. Against a backdrop of rising rates, it was expected that the liquidity squeeze would drag on in 2023, reinforced somewhat by central banks announcing balance sheet reductions. However, the exact opposite has happened in the last few weeks, as a much smaller squeeze than expected from the ECB has coincided with the dollar, energy prices, and the Chinese money multiplier increase to help create a rise in liquidity.

MAPFRE's funds have benefitted very much from this context. According to figures from January 31, all funds in the equity category have recorded gains between 3.75% and 11.07%. MAPFRE Inclusión Responsable, the article 8 ESG fund managed by Manuel Rodríguez de Coca, was the top performer this first month of January, with 11.07% and +2.27% with respect to its benchmark rate. The fund is a product with portfolios that incorporate companies that are committed to labor inclusion of people with disabilities.

This fund is followed by MAPFRE AM US Forgotten Value, a fund born from the alliance between MAPFRE AM and Boyar Value Group, which seeks the best opportunities in the U.S. small and mid-cap segment. Recently, Jonathan Boyar, Director of The Boyar Value Group and Advisor to the fund, analyzed three companies that the fund holds in its portfolio. In the first month, it is up 8.8% (10.8% in USD class).

And finally, the MAPFRE AM Behavioral Fund, managed by Luis García, closes the podium. The peculiarity of this product, which is also up 8% in the month, is that it seeks companies whose businesses are temporarily undervalued by the market, as a result of psychological biases and irrational market behavior. It tries to identify situations where investors' psychological biases cause them to undervalue a company's business. His major exposures are sports companies, specifically soccer teams.

Boundless optimism?

In any case, this scenario could change at any moment in the next two months, for two reasons, according to Matellán. On the one hand, because the pillars sustaining this optimism are somewhat fragile. For example, with regards to the first one, despite the fact that the “numbers were better than expected”, growth is still very weak. One example of this is the latest German GDP figure, released at the beginning of the week. So, “this could all mean that we’re about to get a reality check.”

There are also the actions of investors themselves. Every year begins within a certain scenario or setting, which operators draw up from how the previous year closed. Once the data from the current year begins to be published, the scenario tends to adjust to that information. For example, once we begin to find out about the inflation data for 2023, we then have some information about the impact of the base effect or China. This adjustment normally takes place around March. And there's no reason 2023 would be any different.

So, active management and long-term commitments are once again the keys to this context (in 2022, more than 50% of managers outperformed in the S&P 500, which hadn't occurred since 2009). “A lot has already happened, and though it may seem like the trend still has some weeks ahead, investors who focus on predicting market timing tend to suffer losses in the long term,” concluded Matellán.

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