Anchor Insights August 2022

• During the month of July we have seen increases in both Fixed Income and Equity.
  
• The Euro has depreciated against almost all currencies. EUR/USD hit lows at 0.99 and is currently trading at 1.04.
• The earnings season fueled a “risk-on” sentiment.

• With yields still attractive and the US entering a recession, corporate bonds in dollars are an attractive asset. We can start building positions in high credit quality issues without risk of default.
  
• The publication of results was positive in the month of July, with most companies reporting above expectations.
• August will be focused on the Jackson Hole meeting. We believe that once the good news from earnings releases is over, the bear rally may top out.

We favor US stocks. We are underweight Europeans and Asians.

The most defensive sectors can benefit from a late macro cycle, even recessive:

• Health: it will offer us more protection than cyclical sectors. We can find quality companies.
• Agribusiness: rising prices of raw materials and bottlenecks due to the war in Ukraine have been favoring this sector.
• Consumer Staples: with the capacity to transfer price increases to the consumer.

Long term opportunities:

• Technology: it is cheap after the falls since the beginning of the year.
• Renewables: due to rising energy prices and less dependence on Russia.

We see less travel than last month, but there is still value. We have seen 25 bps declines in US rates, we favor Corporate USD.

• During the month of July, corporate spreads in dollars have fallen slightly. We see it as attractive because the returns are around 5%.
• We underweight corporate bonds in euros because the worse macro context may lead to an increase in defaults, not yet discounted in price.
• High Yield in both euros and dollars could be affected by a weakening of economic fundamentals. We believe that it still does not pay for risk.
• We continue to underweight inflation-linked bonds, as inflation expectations are lower than the current rate.

• The dollar is in the range of 1.03-1.08 due to a more predictable monetary policy than the euro and the war in Ukraine. The currency market discounts a worse outlook for the euro zone. It could have gone all the way to parity.

• We see it as risky to invest in Energy at these levels, but we discount that high prices will remain at these levels in the short term due to the war in Ukraine.

• Inflation and supply problems favor the agri-food sector. We see medium-term growth for these Soft Commodities.