Alpha, in addition to beta, will be making a return in 2017

28 December 2016
In 2016 we saw very strong correlations between all asset classes and a series of geopolitical events with unexpected outcomes. 
A market in which beta is the only major factor inevitably makes life more difficult for all those for whom active management is a distinctive trait because in such cases fundamental analysis may even be misleading at times.
In the past several years we have become accustomed to this scenario, and we have obviously adapted and expanded our management style, adding other tools more closely tied to technical dynamics to the more traditional micro-analysis.
Looking forward, 2017 could be the year when this trend begins to be reversed and when fundamentals return to a central role.
This is certainly the case in Europe, where it is hoped the positive signs glimpsed late in the year will be confirmed: Italy in particular could finally become an extremely interesting market again, but only, of course, if an entire series of factors – relating primarily to its banking system – are adequately resolved in relatively short order.
Of course, important electoral events in Europe remain in the background and will probably take centre stage once more at some point during the year, with the hope that they will mark further progress towards building a stronger Europe.
On the macro front, a step back by central banks will not only result in steeper and higher rate curves, it will also restore a focus on fundamentals after years of “distortion” caused by the effect of enormous monetary stimulus measures: the bond market will require even more caution and, at the same time, more courage, in exploring less traditional segments of the market that are less sensitive to the duration effect.
We are looking at emerging markets with strategic interest, but timing will be fundamental here: the U.S. market is at a high and the next steps will depend a great deal on the interaction between the Trump factor and the process of normalisation at the Fed.
At the segment level, the recent rotation will continue to favour financials, whereas in other segments, such as infrastructure and regulated businesses, we believe that the market has gone too far too fast, creating interesting investment opportunities.
We believe 2017 will not be any less complicated than 2016, but we hope it will be a year of alpha and not just beta: in a scenario of this kind, active, dynamic management can generate that added value that must remain the fundamental objective of professional asset managers.