Euro Pacific Bank

Euro Pacific Advisors’ Portfolio Commentary: Q1 2018

euro pacific advisors fund manager portfolio commentary

Market Overview

Positive momentum in equity markets continued into the new year but gave way to volatility in February as investors showed increasing concern about inflation. The pound strengthened modestly against the dollar and euro which depressed sterling-denominated returns.

Central banks remain on a tightening path on the grounds of controlling inflation and maintaining financial stability. The US Federal Reserve raised interest rates once and at least two more hikes are expected this year. The Bank of England is likely to follow to a lesser extent and even the European and Japanese central banks have guided to a more restrictive monetary policy, signaling a slowdown in Quantitative easing, if not outright rate increases at this stage.


Weakness was widespread across global equity markets.

In the US, the broad S&P 500 index declined by 4.4% in sterling terms while the tech-heavy NASDAQ index fell around 7% from its peak in early March.

Emerging Markets fared better with the MSCI index declining by 2.2% but our Core exposure weighted to India (a potential loser from trade tariffs) and infrastructure (susceptible to higher rates) failed to capture the more resilient sectors.

Fixed Income

Fixed interest markets were generally weaker but strong demand from pension funds generated some recovery towards the end of the quarter.

United States

Following the imposition of tariffs by the US on certain trading partners, fears arose about the potential for escalation into a broader trade war.

In the US, the technology sector, which up to now had been leading the market higher, was pressured following concerns over Facebook’s privacy issues. As a result, the high level of Valuations across the sector has been questioned.


There were several other developments for investors to digest. The Italian election demonstrated that populism in Europe remains strong as the mainstream Democratic party suffered a resounding defeat.

The FTSE 100 made a total return of -7.2% over the quarter. Our Core UK exposure is dominated by exposure to mid-caps and the property sector which held up better, supported by bid activity as companies responded to the value opportunities emerging.


The recent volatility highlights the importance of maintaining a well-diversified spread of assets. Some sectors that were previously trading at a premium to net-asset-value or fair-value, such as infrastructure and asset-backed income, have now seen those premiums eroded and this is likely to throw up attractive opportunities to deploy the cash recently realized over the coming weeks.