Equities, the right balance

12 December 2013

Investments in equities ended the year up, and the 2013 plus sign shows more conviction than its predecessors. Massimo Trabattoni, a member of the Kairos Partners team of managers explains the trend. “Looking at the year now ending, we clearly see how the first half was affected by uncertainty due to the political scenario, which extended even past the elections in March.” The broad agreements reached reassured investors only in part, and now with the fears accumulated in the wake of 2008 behind them, they seek higher medium-term returns, an expectation that makes higher volatility acceptable and causes an inevitable spillover from bonds to equity markets.” And so, after a summer of ups and downs, but characterized by optimism overall, there was a recovery in the fall that can be seen in investor and operator sentiment, although the figures aren’t yet showing it. “This is a theme that will hold strong in the months to come,” predicted Trabattoni. “And it is tied to ten-year US treasuries: their higher yield indicates a recovery in the economic cycle.” He went on to add that, “Personally, I am pleased to see the end of a stage in which we have relied on the artificial lung of quantitative easing and now believe in the real economy’s ability to recover. However, it is essential for this stage not to play out traumatically. The results of a cut in rates and the recapitalization of the banking industry have not yet generated the desired effects on the real economy. Indeed, the benefits have remained ‘within the scope of finance’, without a genuine recovery in credit to businesses.”

Massimo Trabattoni is extremely satisfied with the performance of Kairos Partners management, achieved in part through a repositioning in certain sectors: “The airport industry in particular, and Gemina-Atlantia comes to mind. On the other hand, the luxury goods industry is still overvalued. As multiples have expanded, fundamentals have not improved, so we are exposed exclusively to individual businesses rather than to entire categories of securities.  Looking forward, we see interesting opportunities for recovery in the insurance sector, especially in the non-life businesses, and we are selecting typically financial themes, but with utmost care.”

In terms of products, one of the focal points of the year is Hedge Italia’s transformation into KIS Italia: “The reason behind transforming this “box” is to ensure our clients enjoy more transparency and greater liquidability. Those who stayed with us realized total returns of around 30%. The most important contributors in the year were Atlantia-Gemina, Unipol-Fondiaria-Sai and a few small caps.”