Outlook Third Quarter 2024

The outlook for the coming months reflects market conditions with elements of vulnerability: on one hand, declining inflation allows breathing room in bond markets, which suffered in terms of absolute returns earlier in the year. On the other hand, equity markets remain characterized by extreme concentration in a few technology sector stocks, making sectoral diversification prospects futile for index investors.

Our view for the next few months remains one of continued tension between inflationary and deflationary forces, within a framework of increasing convergence between U.S., European, and Chinese economic performances. The ongoing slowdown in the U.S. economy supports a return of inflation, albeit at levels higher than those prevailing over the past two decades. This suggests a progressive scenario of interest rate cuts by year-end. However, the prevalence of high public deficits, ongoing geopolitical tensions, and reshoring activities all advise caution in declaring victory over inflation. In Europe, the most critical phase seems to have passed for the continent's largest economy, Germany, as there is currently a significant increase in exports. Nonetheless, this should not prevent the ECB from continuing its path of interest rate cuts, already initiated.

Structural issues persist in China, such as weaknesses in the real estate market, with little decisive action to stimulate domestic demand.

Regarding investment opportunities, we are not only at peak equity market valuations but also at reduced levels of credit spreads: credit costs and risks are perceived as very low by the market. We believe a rational approach involves using duration as an effective hedging tool for equity and credit portfolio risks. We are progressively increasing the portfolio's duration in this regard.

We believe there are still opportunities in the short- to medium-term parts of the yield curve in both the U.S. and Europe. We expect the curves to steepen: with the normalization of the curve and the reappearance of the premium in the long-end we maintain a steepening position on the US curve. 

On the equity front, particularly in Compounders and Special Situations strategies, we continue to look with interest at companies benefiting from major secular transitions underway. These include the revision of global supply chains and energy mix security. Vulnerabilities in global supply chains, highlighted by the Covid-19 pandemic, have led many companies to diversify their sourcing to reduce risks and invest in supply diversification and new production facilities across regions to avoid critical dependencies. Significant investments in automation and robotics are also being made to offset higher costs of local production. Trade tensions and supply disruptions are prompting companies to bring production closer to consumer markets.

We are also investing in secular trends such as electrification, decarbonization, and infrastructure investments, particularly benefiting indirect beneficiaries like infrastructure producers and raw material suppliers. For instance, charging infrastructures that manage renewable energy intermittency require advanced storage systems. Smart grids are also crucial for managing renewable energy integration and improving energy efficiency. Sustainable construction practices are also on the rise, emphasizing energy efficiency and the use of ecological materials.

In terms of technological innovation, digitalization continues to expand across all sectors, driving demand for advanced technologies such as cloud services, big data solutions, and artificial intelligence. Implementing automation and robotics solutions enhances production efficiency and reduces operating costs, making industrial operations more competitive.

However, the medium- to long-term structural framework presents less encouraging prospects: we are currently at historically high levels of public debt, not only as a legacy of post-Covid economic stimulus policies but also to support necessary public investments in economic transitions, particularly energy. Public infrastructure investments can create a demand cycle that benefits equipment and service companies for several years. This also increases demand for raw materials, with potential inflationary repercussions, especially in terms of rising energy costs. Additionally, it can exert pressure on profit margins for energy-dependent companies.

These structural changes can represent not only a break from the status quo but also significant investment opportunities.

Currently, we maintain portfolio exposure to commodities and the energy, industrial, and financial sectors, favoring value stocks that can benefit from cyclical rotation. We adopt an active approach ready to exploit short-term volatility and tactical opportunities. The allocation in real assets — gold, uranium, copper — remains a key component. We believe these commodities and precious metals will continue to hold strategic importance in the new paradigm of the aforementioned trends.

Therefore, we believe there are significant global stock-picking opportunities beyond the "usual suspects," i.e., stocks most represented in indices. Opportunities range from mid-cap companies in the U.S. and Europe to mid- and large-cap companies in Asia, including China. China not only offers investment opportunities at attractive valuations but has also developed highly competitive enterprises in high-value-added sectors. It has already positioned itself as the world's largest exporter of electric vehicles, a leader in next-generation nuclear power plants, and continues to invest in technology-intensive sectors. This presents interesting bottom-up investment opportunities, regardless of how the macroeconomic scenario evolves.

Disclaimer

Performance information of the Fund

^Fund Factsheet - Plenisfer Investments Sicav Société d'investissement à capital variable (SICAV) Luxembourg" - Destination Value Total Return ("Fund" or "Sub-Fund")

Investment Objective and Policy: The objective of this Sub-Fund is to achieve a superior risk-adjusted total return over the market cycle. The goal is value creation through risk-adjusted total return. Achieving long-term capital appreciation and underlying income through a long-term focus on valuation and market cycles is key to achieving the Sub-Fund's objectives.

Legal structure: UCITS - SICAV

Investment Manager: Plenisfer Investments SGR S.p.A.

Management Company: Generali Investments Luxembourg S.A.

Launch date: 04/05/2020 (share class EUR ACCUMULATION)

Benchmark for performance fee calculation only: SOFR Index 

Subscription/Redemption process: Valuation day, 13:00 Luxembourg time (T)/ Redemption: Valuation day, 13:00 Luxembourg time (T) + 5

Minimum subscription: € 500,000 share class I; € 1,500 share class R

Currency: USD

SFDR classification: The Fund promotes, among other features, the environmental or social characteristics set out in Article 8 of Regulation (EU) 2019/2088 on sustainability reporting in the financial services sector ("SFDR"). The Fund is not an Article 9 under SFDR (does not have sustainable investment as an objective).  For all information on the SFDR (Sustainable Finance Disclosure), please refer to Annex B of the Prospectus ("pre-contractual document"). 

The Fund is denominated in a currency other than the investor's base currency, changes in the exchange rate may have an adverse effect on the net asset value and performance.

Risk profile and inherent risks 

Risk factors: Investors should consider the specific risk warnings contained in section 6 of the Prospectus and more specifically those concerning: - Interest rate risk. - Credit risk. - Equity risk. - Emerging markets risk (including China). There is no pre-determined limitation to exposure to emerging markets. Emerging market risk may therefore be high at times. - Frontier market risk. - Foreign exchange risk. - Volatility risk. - Liquidity risk. - Derivatives risk. - Short exposure risk. - Distressed debt risk. - Securitised debt risk. - Contingent Capital Securities Risk ('CoCos').

Destination Value Total Return

RISKS

Summary Risk Indicator

Its purpose is to help investors understand the uncertainties associated with gains and losses that can impact their investment. 

The performance fee is calculated according to the "High Water Mark with performance fee benchmark" mechanism with a performance fee rate of 15.00% per annum of the positive return above the "SOFR Index" (the performance fee benchmark). The actual amount will vary depending on the performance of your investment. Tax aspects depend on the individual circumstances of each client and may change in the future. Please consult your financial advisor and your tax advisor for more details. Please refer to the countries of distribution and the website of the management company to find out if a class is available in your country and for your group of investors.

(#) Based on the latest KID - May 2024.

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