David Ross, CFA, LFDE’s emblematic American manager, was not wrong. At the end of 2024, he warned that the market would be going through some difficult times at the start of the year. The key to investment will lie in prudence over the next few half-years, as the manager has confirmed in recent weeks. In the midst of heightened volatility, the stock-picking hunter can pick up some bargains. For example, one of David Ross’s favourite stocks, which was added to the Echiquier World Equity Growth portfolio at the end of 2024, jumped by more than 50%.
David Ross, the American manager of Echiquier World Equity Growth, a conviction fund focusing on around twenty large-cap, high-growth international companies, believes that life as a fund manager has become much more complicated. The manager makes no secret of the fact that the policies pursued by Donald Trump since the start of his term of office have had a lot to do with it. “While Donald Trump should not be taken literally, he should be taken seriously. Unfortunately, life will be more complicated for equity and bond managers alike. There will undoubtedly be plenty of good opportunities in a volatile market, but the key is to be cautious. Investors will need a high degree of stability to navigate this new market environment. Buying the hollows will no longer be a good idea. “
Destination Brazil
At the beginning of May, David Ross’s main convictions were in very large stocks such as Microsoft and Amazon. After selling it four years ago, the manager recently returned to China’s Alibaba, at an attractive valuation. The US trade policy against China will force the country to emancipate
itself from the US economy. Brazil, which has privileged and extensive trade links with the Asian country, will be the main beneficiary of the trade war between the United States and China The manager has added some strong Brazilian stocks to his portfolio.
The manager continued: “In this climate of uncertainty, the Fed is unable to estimate the impact of tariffs on inflation, to which must be added a very likely tax reform, the contours of which will have to be worked out. We need to keep a close eye on the yield on the 10-year Treasury bond. A yield approaching 5% will have the effect of weakening the equity market. The economy will weaken and Trump’s unpredictable policies are likely to accelerate this slowdown with his destabilising strategy fuelled by a proliferation of executive orders.
Faced with uncertainty and a lack of visibility, sooner or later investors will end up demanding a more comfortable risk premium in the prices of their purchases of US equities. In other words, a lower-than-usual price/earnings ratio. But this lack of visibility could also lead investors to diversify into other foreign markets (Asia, Europe, etc.).
After Donald Trump’s inauguration, the markets dreamt of lower taxes and less regulation, but at the beginning of April they were faced with a mess, with the decision to impose tariffs that were surprising and devastating for the financial markets. And the end of an era of American exceptionalism.
The truce on tariffs between China and the United States, agreed in May, was reassuring but seen by some as a major setback for Trump in his dealings with China.
David Ross added: “With this latest decision, we are witnessing the liberation of Liberation Day, while the economic damage caused by the tariffs imposed at the beginning of April has already had an impact on the economy. This liberation from the Liberation is yet another sign of trade policies decided on a day-to-day, or even hour-to-hour basis.” All of which adds to the uncertainty and unpredictability.
David Kruk, Head of LFDE’s Trading Desk, is constructive. 93% of US equities are held by 10% of investors. However, private American investors remain very active and are omnipresent on Wall Street, owning 58% of US equities. During each of the last major downturns in the market in recent months, private investors have been there to buy.
Admittedly, sometimes by favouring explosive and highly volatile stocks such as Palantir or Tesla.
Liberation Day
On Liberation Day on 8 April, the volatility index exploded, indicating a high level of nervousness and anxiety in the market and even panic among some investors. However, with a vix index that reaches or exceeds levels of 30/35, history has shown that at the latest, generally six months later, the investor comes out ahead from the purchases made during this period of high vix index levels,” explains David Kruk. The proof is in the pudding, as this time it only took a month for prices to bounce back and even reach the starting point at the beginning of April. David Kruk also points out that the Chinese authorities are continuing to provide support to its market through stimulus measures.
50% in a few months
At the end of 2024, Uber was included in the portfolio of the Echiquier World Equity Growth fund. Uber shares even hit a low of $55 in mid-December, the lowest level of the year. Some five months later, in mid-May, the stock rebounded strongly and climbed above $90, an increase of around 50% in a market that was not favourable. Good stock picking..
Finally, Donald Trump is more inclined to favour a weaker dollar, and David Kruk notes that a 10% fall in the dollar against the euro costs European companies 2 to 3% in profits. From 1.03 at the start of January, the euro then soared towards 1.12-14. But Pierre Puybasset, spokesman for LFDE management, wisely points out that the euro dollar had already touched 1.12 in September 2024. To be taken into account..
