March 2019

Q1 2019 was a good quarter for the equity markets. The US S&P 500 index rose 13.1% excluding dividends, including a 1.8% gain in March. MSCI Europe, its European counterpart, rose 12% excluding dividends, including a 1.6% increase in March. Both indexes erased December's equity market corrections and neared the peak levels of early 2018, before the emergence of numerous concerns about the maturity of the growth cycle that began after the 2008 crisis.

These remarkable performances, which the community of market experts largely failed to foresee, raise questions about their sustainability, especially at a time of sluggish world growth. Buoyed by the continuous growth of the US economy over the past 10 years, the American index reported average annual gains of 14% (excluding dividends) over the course of the decade, i.e. since the market bottomed out following the 2008 crisis. This pace is obviously unsustainable, and the market's level simply begs for caution. Yet, in terms of market valuation, the PE ratio has almost returned to 17x, compared to a 25-year average of 16, which is not really alarming, although it does call for caution in terms of earnings expectations. Seen in this light, corporate quarterly earnings reports will play a key role.

Virtually all of the companies we have met since the beginning of the year expect growth to slow, although they do not foresee a recession. Many said that margins were being squeezed. There is a good chance that 2019 will discriminate high achievers (in terms of economic performances) from the others. Our equity selection and the careful implementation of our Quality & Value management process will drive performance: we seek quality to protect against disappointing economic news, albeit without accepting overvaluations, as well as pockets of undervalued stocks, without compromising on quality.

Among the compartments of the Rouvier funds, note the strong performances of Rouvier Patrimoine, up 2.2% for the quarter, with an equity compartment still limited to 19.3% to limit risks, and Rouvier Évolution, which increased 6.3%, with an equity market exposure of 64% net of derivative hedges. The equity compartments Rouvier Valeurs and Rouvier Europe gained 10.1% and 9.4%, respectively.


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