Euro Pacific Bank

Euro Pacific Advisors’ Portfolio Commentary: Q2 2018

euro pacific advisors fund manager portfolio commentary

Market Overview

A robust global economy, fuelled by improving US economic data, led developed markets broadly higher during Q2. Dispersion of returns across equity markets increased and there was weakness in emerging markets where growth prospects have been trimmed. European data has also cooled and political risk there has again come to the fore.

United States

Strength in the US dollar continues to be one of the defining features in markets. The US Federal Reserve increased interest rates by 25 basis points for the second time this year and it remains committed to two further hikes within the calendar year. It has resulted in weakness in other currencies, primarily in emerging markets where underperformance has been widespread, partly as a result of reliance on dollar-denominated debt and ensuing pressures on lending activity.

We expect foreign exchange rates to continue to play an important role in markets in the short term and remain positive on the US dollar, largely because of the progressive stance on monetary policy adopted in the US in comparison to other countries. Conditions do not appear ripe for a recession and an imminent equity bear market looks unlikely. The momentum in US assets looks set to continue for now although valuations, particularly in the technology sector, look expensive. Europe and emerging markets are at an earlier stage in the cycle and could outperform if fears regarding global trade wars and political risk in Europe subside.


Europe committed to ending its Quantitative Easing policy at the end of 2018, although there remains no clear exit for Japan. In the UK, interest rates continue to rise at a glacial pace; with the disappointing economic backdrop setting back the timetable for rate increases.


The majority of equity markets are still lower in 2018 with the US market a notable exception.

The US produced the best returns in global equity markets and the tech-heavy NASDAQ made a total return of 7.3%. Returns were more modest elsewhere. UK equity returns were augmented by weakness in the pound against the US dollar which has helped exporters. The oil price rallied sharply as the US stepped back from the Iran nuclear deal, meaning that global supply would be lowered as a result of the renewal of sanctions.

Fixed Income

There was little movement in fixed interest markets over the quarter. The sector remains an important source of income and offers diversification.


The gold price declined by -5.5% as investors moved into riskier investments such as equities. The Absolute Return sector was unchanged and in the current environment it remains difficult for managers within the sector to add value.