How long will the Music Play this Time?
- Markets continued their rally in DecemberÂ
- Global Developed Markets were up 4.2%, Global Small Caps gained 7.2% and Emerging Markets advanced 7.4%
- For the full year 2020 global equity markets were up 16% (Developed Markets) to even 18% (Emerging Markets) despite pandemic and lockdwons
- Artico stock selection for the full year was negatively affected by large cap growth stocks significantly outperforming small caps
- The valuation gap between small and large cap stocks has considerably widened
- Equity markets are driven by apparent over-optimismÂ
- Enthusiasm has reached retail market (usually not a good sign)
- Tesla has performed over 1000% in just over one year and Airbnb’s IPO was exuberant. Just two of many warning signals that markets are overheated
- Valuation approaching or exceeding all-time highs
- Markets are climbing on thinner ice as they have entered the danger zone
- However: Unlimited money supply functions as a safety net, providing plenty of oxygen for this climb to go further
- Meanwhile government debt levels keep rising and central banks finance it while keeping interest rates ultra-low
- How long can such governmental Ponzi scheme last? Nobody knows really.
- Economic growth alone is unlikely to resolve the problem
- Debt restructuring or even monetary reform are very ugly scenarios
- Stay focussed on real assets, avoid nominal assets
- Artico Sustainable Equity Funds are well positioned for such a unpredictable future  for three reasons:
- First, Artico is invested in companies with fundamental characteristics of highest quality
- Second, Artico funds have no style bias (growth versus value) and are not exposed to one particular style
- Third, Artico funds cover the full spectrum of market capitalization. So, any normalization of valuation between small and large cap stocks will tend to benefit our funds due to their small cap exposure