Euro Pacific Bank

Portfolio Commentary: Markets Decline Under Pressure in Q3

Published: October 11, 2021

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold and Precious Metals
  • Peter Schiff

Our Commentary

Market overview

September witnessed the reversal of third quarter’s gains as turbulent equity and bond markets suffered declines due to a broad range of factors:

  • Concerns about global growth waning due to the highly infectious Delta Covid variant
  • Broadening and deepening supply bottlenecks
  • Rising inflation and hastening interest rate rises
  • Numerous negative developments in China seen as posing downside risks to financial markets

Evidently, the Citi Economic Surprise Index, shown below, highlights the extent to which negative economic surprises are now exceeding positive surprises.

Source: Bloomberg.

For the month, the S&P 500 Index declined by 4.9% and the NASDAQ by 5.3%, while the FTSE all-share Index retreated by 1.1% and the Eurostoxx 50 by 4.7%.

In the U.S., sector rotations continue to play a large part in investor strategy. According to our observation, nearly 90% of S&P 500 constituents have experienced at least a 10% correction during the year but the index has not drawn down by more than 5% at any point.

Contrastively, pockets of emerging markets performed better, such as the MSCI India index which registered a 2.0% gain. Nevertheless, all major stock markets remain in positive territory year-to-date except for China’s CSI 300 Index, which has declined almost 7%.

Elevating pressures from Central Banks

This year, investors have been focused on the impact of the looming debt ceiling deadline and the US Federal Reserve’s tapering intentions. For a brief period, the prospect of a government shutdown and the worst-case scenario of a sovereign debt default and downgrade suggested that the Fed may have to move out its tapering timeline. However, the U.S. Senate eventually announced a deal which avoided shutting down on October 1st and extended government spending until December 3rd of 2021.

Meanwhile, tapering looks set to begin based on the Federal Open Market Committee’s (FOMC) post-meeting comments in late September. The committee judges that a moderation in the pace of asset purchases may soon be warranted and Chairman Jerome Powell opined that “a gradual tapering process that concludes around the middle of next year is likely to be appropriate.”

Another major concerns by investors is rising interest rate. The majority of FOMC members see the first US interest rate hike happening in 2022, a shift from June’s meeting when the majority expected it in 2023. As a result, the 10-year US Treasury yield has bounced off its lows and is trading at about 1.5% — a level investors were expecting only later this year.

Source: FactSet, CNBC.

Across the Atlantic, the minutes from the Bank of England’s September Monetary Policy Committee meeting also highlight increasing concern about the durability of inflation. Some commentators now expect two interest rate rises next year with the first coming as early as the spring.

UK gilts have reacted to the changes in interest rate expectations even more strongly than US treasuries with a 50 basis points increase in 10-year yield since mid-August. This trend may has further to run as inflation continues to surpass the Bank of England’s expectations. It now forecasts consumer price inflation to peak above 4% at the turn of the year (well-ahead of the 2.1% forecast it issued in February) and not to fall back to its 2% target until the second half of 2023.

Source: Bank of England, Refinitiv.

China sentiment further deteriorates

Evergrande crisis

In addition to slowing Chinese economic growth and government crackdown on the tech sector and online education industry as discussed on a past commentary, the news that Chinese property giant Evergrande was facing a debt crisis derailed market sentiment further. The property developer amassed mountains of debt, predominantly domestically, when it expanded from housing into a range of other ambitious initiatives including electric vehicles, sports, and theme parks.

The crisis came to a head in late September when Evergrande failed to meet a debt payment. It has 30 days to settle and avoid triggering a formal debt default. Investors are on edge, waiting to see whether the government will back the debt, whether it will be rescheduled or whether the company will default and become akin to a “Chinese Lehman Brothers.” In dealing with this issue, the Chinese government is not expected to bail out the company, but it has been adding liquidity to financial markets to avert broader contagion.

Source: CNN.


Evergrande’s situation has broader ramifications for China and, to an extent, global economy because the Chinese property sector contributes almost a third to Chinese GDP. As a result, a slowdown in the Chinese economy would not bode well for the rest of the world, which has relied on the vibrant recovery in China to provide tailwinds for their own economies.

We can perhaps gain some comfort from the commitment of the Chinese government to reducing speculative activities in the economy and implementing regulations to prevent excesses from building up. The intention is to introduce more balance into the Chinese economy and promote “common prosperity”. The success will depend on whether the regulators can steer the private and public sector without too many missteps.

Despite sentiment in Chinese markets is currently weak and government policy is putting the brakes on growth, the year’s final quarter is historically strong for Chinese equities with prices moving up on average by 3.6% in October alone.

Historically, Chinese equities perform well in Q4. Source: Bloomberg.

Portfolio Actions

Our Chinese equity exposure is balanced between infrastructure and technology sectors which, notwithstanding recent interventions, offer huge growth prospects at relatively low valuations. Furthermore, we have no direct exposure to Evergrande so concerns over the company’s default risk is very low on our table. From both a short and longer term perspective, we think it is not the time to withdraw from investing in the world’s second largest economy.

On the other hand, with interest rate hikes and the FED’s tapering coming possibly later this year or next year, our International Balanced and International Growth fund are well-diversified to withstand any potential short-term market volatility. Tactically, we are also holding less than 10% of our funds’ weight in cash to take advantage of any potential market’s pullback.

The portfolios’ September performance is as followed:

Fund Name Performance
International Balanced -2.62%
International Growth -2.54%
Natural Resources +0.96%
Gold & Precious Metals -11.47%


Euro Pacific Advisors Management Team

Portfolio Commentary: Buoyant Markets Amidst Fizzling Growth

Published: September 08, 2021

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold and Precious Metals
  • Peter Schiff

Our Commentary

Market overview

August saw stock markets continuing to march higher to a record-beating earnings season, despite the far-reaching spread of the Delta variant raising concerns that global growth may have reached its peak, and we could fall back from here.

In the U.S., the Dow Jones Industrial Average advanced 1.5% while the S&P 500 was up 2.6% and the Nasdaq lead the way by gaining 3.1% for the month. The S&P 500’s forward P/E, which captured investor expectations 12 months down the line, remained elevated at 20.9, indicating that investors continued to anticipate strong earnings growth.

Across the Atlantic, the FTSE 100 and the Euro Stoxx 50 experienced similar increases of 1.7% and 2.5% respectively. In the Pacific region, China’s CSI 300 Index managed to eke out a 0.4% gain during the month notwithstanding the regulatory clampdown, that sent its technology and online education stocks spiraling lower in the previous months. For the year, it is one of the few stock markets that is still in the red, down by almost 8% year-to-date.

US, Europe stocks brush off China risks, trade near record. Source: Bloomberg.

State Street is less confident than Wall Street

While US stock market indices marched higher in August, U.S. consumer confidence took a big knock in the same period.

Are consumers less confident than Wall Street about economic growth? Source: Refinitiv Datastream.

A cause for concern is that zero-COVID economies such as China, Singapore, Taiwan, Australia, and New Zealand, which have tried to completely stamp out the virus, have seen a renewed rise in infections. This event has undermined many investors’ confidence that the virus will ever be completely vanquished.

A growing pool of expert opinion suggests that COVID is likely to become endemic, much like the seasonal flu, and that we will have to learn to live with it.

Fizzling momentum, waning mood

The impact of the Delta variant started to be felt during October of last year, with the rollover of the purchasing managers’ index (PMI) and Citibank’s Global Economic Surprises Index, which reflected whether economic activities were outperforming or underperforming forecasts. To note, the Global Economic Surprises Index has turned negative for the first time since mid-2020. This indicator highlighted waning investors’ mood due to the US and international data releases were missing forecasts at a noticeable rate.

Whether this news has any impacts on future markets returns is unknown, studies has shown that 1% surprise in quarterly GDP growth is associated with 0.7% change in quarterly U.S. equity returns in the last 30 years.

Economic surprises indexes weakens as economic activity slows. Source: Refinitiv Datastream.

On the other hand, recent PMI data released by the National Bureau of Statistics also showed that China, where outbreaks of the virus have been strictly managed, has experienced economic activity slowdown. The country’s service sector PMI data has also fallen below 50 for the first time since the first quarter of last year, signaling a contraction. Its manufacturing sector and export orders declined in tandem.

Non-manufacturing gauge contracted for the first time since March 2020. Source: National Bureau of Statistics.

US Government debt revisited

Relationship between yield and sentiment

Yield changes highlighted the sensitivity of rates to prevalent investor sentiment. In the first quarter of this year, yields rose on inflation fears. In the second quarter, they fell on concerns of slowing growth. Two months on and investors are still harboring concerns about growth and investors still seem appeased by Powell’s commitment to address inflation as and when needed.

A hot summer for US Treasuries

The perplexing decline in US bond yields continued into August, with the US 10-year Treasury yield remaining below 1.4%, having traded at 1.75% at the end of March. During August, the world’s benchmark interest rate started out at 1.17%, reaching a high of 1.367% around mid-month before ending August below 1.3% again.

10-year Yield slides from 2021 peak. Source: Bloomberg.

The dip in yields was attributed to concerns about slowing growth and uncertainty about whether the US Federal Reserve will begin tapering off its bond buying programs by the year’s end or next year. At the much-anticipated Jackson Hole Symposium towards the end of the month, FED Chair Jerome Powell managed to keep investor sentiment on an even keel by acknowledging that tapering may begin later this year but that it would be conducted cautiously and carefully.

US equity investors took the news in their stride with stock market indices again reaching new highs by the end of the week, while the US Treasury Yield ticked up from its mid-month lows. Expectations of the 10-year treasury yield reaching 2% by year-end were no longer commonplace, although some market commentators thought that it was still possible. According to FactSet data which showed the average forecasts of analysts last month, the 10-year yield was expected to rise to 1.8% by the year-end from 1.31 %. However, Goldman Sachs and JP Morgan have both cut their 10-year yield forecasts to 1.6% and 1.75% by the end of 2021. Citigroup, in contrast, still expected the yield to come in at 2% for the same period.

Portfolio Actions

Despite the fall in yields, there are widespread expectations that inflation is not going away quickly. With investors’ sentiment and PMI reading on a declining trend into August, whether the current stock markets’ growth momentum can be maintained remains a question mark.

Additionally, a market discrepancy that we have noticed is despite improving labor markets booming US economy, interest rates at present levels are not compatible to the current market conditions. What is even more important for investors is the inflection point, in which interest rates are raised to match with the corresponding economic conditions. This event can potentially bring intense volatility to both equity and bond investors’ portfolios. Regardless of the outcomes, our portfolios remain diversified to prepare for such market events.

The portfolios’ August performance is as followed:

Fund Name Performance
International Balanced +1.09%
International Growth +0.95%
Natural Resources +0.64%
Gold & Precious Metals -6.27%


Euro Pacific Advisors Management Team

Portfolio Commentary: Cross Current Buffet and Chinese Stocks Sell Off

Published: August 06, 2021

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold and Precious Metals
  • Peter Schiff

Our Commentary

Financial markets buffeted by cross currents

July witnessed a variety of cross currents at play in the financial markets. They are the following:

  • The spread of the more highly contagious Delta Variant and potential economic impact due to measures that may be needed to prevent its further spread.
  • Worries that the global economy may have reached peak economic performance which may lead to plateau or slip from now.
  • The ongoing debate about inflation, with more support for it likely to be transitory than turning into 1970’s high inflation.
  • Supply shortages, which saw the prices of commodities and other items rise as demand continued to outpace supply and delivery of goods remained slow.
  • Tense US-China relation, which was viewed as likely to translate into even further decoupling with huge ramifications for the global economy.
  • China causing havoc in the tech sector and broader stock markets by coming down hard on promising Chinese tech companies due to what it defines as data privacy issues.

Surprisingly, investors seem to shrug off these concerns and the US stock market made further progress with the broad-based S&P 500 rising 2.4% during July, ahead of the Dow Jones Industrial Average’s 1.3% gain.

Across the Atlantic Ocean, the main European and UK indices saw little changes but like all the major US indices have provided double-digit gains year-to-date. Meanwhile, Japan’s Nikkei slipped 5%, reducing the index’s year-to-date gains to 0.2%.

Delta Variant and the global economy

In the UK, the nervously anticipated Freedom Day on 19 July went ahead despite the rise in delta variant-related infections. Prime Minister Boris Johnson defined the opening as a move away from legal restrictions to personal responsibility.

So far, the reopening has had a favorable, but relatively muted, impact on the economy, with less movement and activity than expected – probably a result of cautious attitudes as a result of the rise in infections. Towards the end of July infections began to ease off, which bodes well for the world’s economy to shift towards more normal activities.

Source: and GISAID- Last updated August 3, 2021.

With the COVID-resurgence-fear simmered in the background, the latest World Economic Outlook, released by the IMF, has highlighted the still growing divergence between advanced and emerging market economies with the latter expected to outperform until 2022.

At a global scale, the IMF projection maintained its forecast 6% growth rate for the world, while upping the rate of growth expected from advanced economies and reducing it for emerging markets, particularly emerging Asia. The change seemed to be influenced by rates of vaccinations as having a big impact on the different macro-economic experiences across the world.

Source: IMF, World Economic Outlook- Updated July 2021

In the US, GDP growth came in at 6.5% for the second quarter – two percentage points lower than economists’ projections but seen as a solid performance for the world’s largest economy. The shortfall was ascribed to the clogged supply chains that are slowing down inventory rebuilding as we are seeing one of the lowest Global PMI Suppliers’ Delivery Times Index reading in 21 years.

Sources: IHS Markit, JPMorgan.

As an indication of the buoyant demand that is resulting in supply constraints, consumer spending soared for the second quarter, with spending on goods up 11.6% and services, including restaurants and airfares, 12% higher.

On the other hand, spending levels are being underpinned by the trillions of federal rescue money that has been introduced into the US economy.

Chinese stock market woes

The CSI300 Index continued to suffer from the surprising clampdown on technology companies, with the Chinese government citing data privacy concerns. Sentiment was also hit by the announcement of a complete regulatory overview of the $100 billion online education industry, one of the favorite sectors among foreign investors.

As a result, Tencent saw its share price sell off by 9% in its worst day in a decade, erasing $100 billion from the company’s market capitalization. Other notable company hurt in the sell-off was Meituan, a food delivery firm, which lost 18% in one day. Alibaba and JD’s stock price were no exception to the market trend either.

Investors’ favorite Chinese stocks were among the recent regulatory campaign’s casualties by the Chinese government. Source: Bloomberg.

The Chinese government has also announced that she is exploring various measures to contain the rapid expansion in these technology companies, including anti-monopoly investigations, new laws, and direct communications with top executives. While these measures and what they entails are unknown, the uncertainty it creates will keep investors away from the market in the short-term.


Despite fears of a new wave caused by the highly infectious COVID-19 Delta Variant, we foresee the global economies continue its track to recovery with growth divergence skewing towards the emerging markets in the next year.

While Chinese stocks experienced a beat down in the last months, the Chinese government’s surprising and far-reaching shifts in market regulation has highlighted that they were more concerned about managing the capital markets than scaring off foreign investors.

Historically, the Chinese tech sector has suffered from sharp reversals in the past and it has recovered strongly. Furthermore, their valuations are no higher than those of US counterparts despite growth trends and prospects remaining stronger while anticipation of monetary easing in China is growing. This is supportive of equities in the long-term.

Portfolio Actions

We want to maintain our portfolio’s current composition but be very responsive to critical changes in the market. Hence, we are tactically holding less than 10% of the portfolios’ weight in cash while refraining from adding new investment ideas to the portfolios.

The portfolios’ July performance is as followed:

Fund Name Performance
International Balanced +0.64%
International Growth +0.29%
Natural Resources +0.16%
Gold & Precious Metals +1.09%


Euro Pacific Advisors Management Team

Portfolio Commentary: Successful vaccine rollout fuels further growth optimism

Published: July 06, 2021

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold and Precious Metals
  • Peter Schiff

Our Commentary

Vaccination progress

Around three billion doses of COVID-19 vaccines have now been administered in what has become a race against ever-emerging variants of the virus.

The success of the vaccination campaign in the United States has resulted in it now taking top spot in the Bloomberg Covid Resilience Ranking with many travel routes opening up to those vaccinated.

Source: Bloomberg.

However, the Delta variant has become a particular cause of concerns in the UK, Europe and South Africa. The highly contagious variant is responsible for upwards of 90% of new infections in the UK.

Europe is divided on opening travel to other regions, with southern nations eager to participate in the usual summer tourism trade and northern countries, particularly Germany, loathe to risk another upsurge in infections.

Overall, the progress in vaccination campaigns combine with strict border control policy by governments have made a positive impact in controlling the infection rate. However, it is reasonable to remain cautious about the danger of new COVID variant emergence, which can surprise and cause panics in the markets.

How is the global economy recovering?

The path to full economic recovery continues apace. Vaccine progress has fed through to the uneven growth prospects of developed versus emerging economies, with Africa a particular laggard in this respect. While global growth prospects have been repeatedly upgraded this year by the likes of the IMF, World Bank and the OECD, the overall 4% plus growth this year belies an increasing divergence in growth across the globe.

The strength of the global recovery is largely attributable to a handful of major economies. The US and China, for instance, are each expected to contribute more than 25% of global growth this year and the US’s contribution is outsized relative to recent history – almost three times its 2015 to 2019 average.

Estimates for growth in Europe are also increasing. SP Global has upgraded its forecast for the Eurozone to 4.4% this year and 4.5% in 2022, noting the recovery now extends from industrial production to services as most restrictions are lifted and households start spending again.

Despite the anticipation of a strong recovery, the World Bank still expects 2022 global output to remain about 2% below pre-pandemic projections.

Corporate earnings remain resilient

Corporate earnings continue to beat expectations, contributing to upbeat forecasts for the year as a whole. Although base effects are magnifying the numbers, with the second quarter increase likely to be most pronounced, earnings growth would still be positive versus 2019 even without the base effect.

Q2 marked the highest number of S&P 500 companies issuing positive EPS guidance for a quarter since 2016. Source: FactSet.

Based on the extent of the upside earnings surprises in the first quarter, for the year as a whole, earnings are expected to increase 35% after declining 13.1% last year – a considerable recovery.
Thus, while concerns have grown about whether an equity market meltdown may be in the offing, given the sky-high valuations, stocks could continue to rise if these earnings expectations are met.

Anyhow, our International Growth & Balanced Funds remain diversified to anticipate any unexpected market moves in the short and long-term.

Reflation trade paused, commodities saw mixed results

June saw a dialing back of the reflation trade, as concerns about inflation eased off towards month end and the technology sector once again outperformed.

This shift is evident in the Nasdaq’s 6.4% gain versus the Dow Jones Industrial Average, while the FTSE, and Japan’s Nikkei ended the month broadly unchanged.

India’s stock market put in its best performance of the year to date. There are some concerns about extended equity valuations, but the improvement in the country’s economic outlook during June as lockdown measures were removed, vaccinations continued apace and the economy opened for business again, served to sustain investor optimism.

The sectors that have taken the lead are materials and industrials, which are seen as offering the best performance potential during a cyclical economic revival. There are also opportunities in real estate, such as new generation technology parks (India has 75% of the world’s digital talent) and infrastructure.

The steep upward march in commodity prices for the first five months of the year plateaued during June, with the Bloomberg Commodities Index slipping 0.15%.

Oil prices remained strong, with the Brent Crude price gaining 8.2% to end the month above $75 a barrel. Gold lost ground as risk appetite remained in force.

The precious metal ended the month below $1,800, down some 7%, while copper’s record rally also lost ground during the month, with the price coming down 8.8%.

Will outflows from Cash support further market upsides in the third quarter? Source: BoFA Global Investment Strategy, EPFR global.

Don’t take your eyes off inflation yet

All eyes remain on any signs of inflationary pressures that could prove more entrenched than the central banks think likely. US inflation figures were higher than expectations and opinion remains divided on whether inflation will become a problem or prove transitory once the dust has settled. Federal Reserve Governor Jerome Powell called for patience, saying it wasn’t the time to make hard predictions in such unprecedented times.

However, a slightly more hawkish tone did appear in the Federal Open Monetary Policy Committee statement, with the dot plot bringing forward interest rate increases. Powell indicated that the bank would be talking about asset purchases in the meetings to come but warned against interpreting the dot plot as a forecast of interest rate moves. He stressed that any decisions around tapering would be well telegraphed and thus would be no surprise to investors.

In the immediate aftermath of his comments, markets sold off and US Treasury yields spiked. Subsequently, stock markets have rallied to end the first half of the year on a positive note.

Portfolio Actions

For now, the market has shrugged off any concerns about rising rates. However, volatility will likely return as we get close to the next Fed’s meeting in July, or at least until year’s end.

Our fund managers are therefore tactically allocating less than 10% of our portfolios’ value in cash to take advantage of any short-term opportunities arising in the future.

The portfolios’ June performance is:

Fund Name Performance
International Balanced +2.93%
International Growth -0.10%
Natural Resources -3.26%
Gold & Precious Metals -10.68%


Euro Pacific Advisors Management Team

Portfolio Commentary: Inflation continues to dominate financial markets

Published: June 08, 2021

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold and Precious Metals
  • Peter Schiff

Our Commentary

Monthly recap

Stock markets, commodity prices and cryptocurrencies all experienced a volatile May, first climbing strongly and then selling off sharply as inflation fears surged and then subsided.

Headline US consumer price inflation came in at 4.2%, well above the US Federal Reserve’s 2% average target. Cars and food were the main inflation drivers with the 10% month-on-month increase in the price of used cars contributing one third to the overall increase in the Consumer Price Index (CPI).

The steep increases in commodity prices have also contributed to upward price pressures globally, with the Bloomberg Commodity Index 17.2% up for the year to date. The copper price has seen the highest gains of the commodity basket due to its use in renewable energy solutions although it did retreat from highs achieved earlier in May.

Semiconductor-pull inflation?

Central bankers and economists are convinced that supply shortages in key areas of the economy are behind many of the price increases. While these may continue into the third and fourth quarters, their view is that these will not have a persistent effect on prices as manufacturers adapt to post-COVID-19 demand levels.

Chip shortages is predicted to affect GDP growth negatively

The most acute supply shortages have been in semi-conductors. The shortage has affected a broad swathe of manufacturers in industries ranging from autos to smartphones to white goods such as washing machines. Contributing to the rising price of semiconductors is the hoarding of chips by manufacturers eager to ensure they have sufficient supply in a period of uncertain demand.

As worries about supplies have mounted, so have concerns about chip production, the bulk of which occurs in a limited number of countries and by a handful of suppliers. With shortages expected to last for at least the next few months, Goldman Sachs has estimated that at least 169 industries have faced disruption with a potential 1% negative impact on US GDP this year.

Will increasing chips’ prices add upward pressure to inflation in the upcoming months?

Uncertainty in the cryptocurrency market


The assets dominating the news and proving most volatile in May were the cryptocurrencies, with Bitcoin (BTC)* holding the highest profile.

BTC price in April had shot up to almost $65,000 when Elon Musk, the CEO of Tesla, Inc., went public about making a $1.5bn investment into the world’s largest cryptocurrency. The coin then crashed after he criticized the energy consumption associated with its mining interests and announced that Tesla would be suspending payments using the Bitcoin token.

After selling off to below $32,000, the price recovered a little to end the month at around $38,000. It remains more than 350% higher than a year ago.

Causes of crypto volatility

Elon Musk has been one of the main causes of BTC’s volatility this year.

Besides Musk’s unpredictable commentary, Bitcoin’s fortunes were adversely affected by the tough regulatory stance adopted by the Chinese government when it warned financial services companies that they were not allowed to accept Bitcoin payments. China also reiterated its commitment to positioning its Central Bank Digital Currency as the digital payment of choice.

While many believes that price movement in the crypto space are indicators of future stock performance, we are skeptical about this thinking’s merit but we are open-minded about the possibility of correlation between these two asset classes.


Events in May highlighted that, until the global economy and financial markets have come out the other side of the pandemic, sentiment will remain extremely volatile.

For the rest of the year, global economic growth, which is showing very little sign of waning, may well remain a fundamental underpin for stock markets. One cloud on the horizon for corporate earnings is the impact of President Biden’s proposed tax increases, but for now the focus is elsewhere.

Portfolio Actions

The month of May witnessed positive performance by all of our funds:

Fund NameMay's Performance
International Balanced+1.44%
International Growth+1.74%
Natural Resources+3.70%
Gold and Precious Metals+10.95%

Our portfolio managers increased the cash position slightly in May. The portfolios tends to keep a small cash element, also known as the Tactical Element, to take advantage of short term opportunities in the market. Beyond that, we continue to ensure that our core strategies are well-diversified and our commodity funds track their respective benchmarks.


Euro Pacific Advisors Management Team

*Note that our funds do not hold cryptocurrency.

Portfolio Commentary: Should investors be worried about inflation?

Published: May 11, 2021

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold and Precious Metals
  • Peter Schiff

Our Commentary

April summary

As vaccine rollouts move forward at a promising pace in Europe and the US, and economies open up, optimism is translating into increased forecasts for 2021 economic growth. Meanwhile, the US Central Bank maintains that it is in no hurry to withdraw monetary stimulus. Consequently, many major equity indices have climbed to all-time highs and safe-haven assets such as treasuries and gold have stabilised after the steep declines of Q1.

The FTSE 100, undeterred by a large financial sector and lingering worries about Brexit, has surpassed the level at which it began last year. It is also worth noting that markets greeted the 18.3% rise in first quarter Chinese GDP with nothing more than a shrug. Coming in May, the base effects from a summer in lockdown are bound to be spectacular for equity outperformance.

Earnings season update

Most companies that have reported on the first quarter have announced their earnings per share (EPS) far above estimates – a performance attributed to both better-than-expected business performance and last year’s low EPS estimate as a result of the onset of the COVID-19 pandemic.

84% of the US companies reporting by the third week of April have beat EPS estimates. The average upside surprise was 24% – significantly above the five-year average of 7%.

Meanwhile, the majority of European companies have also reported earnings above market expectations and better sales growth than consensus estimates. Earnings surprises were delivered across various industries, with financials, consumer discretionary, materials and healthcare reporting the highest earnings growth. The industrial and energy sectors were the only ones to report year-on-year earnings declines.

It’s important to note that after three successive quarters of companies outperforming estimates, the surprise element and consequent positive impact on share prices has also diminished. In many cases, companies reporting earnings in line with expectations are now being penalized by the market. So, we remain cautious about investing in overvalued and low-quality stocks.

The base effect from a Summer in lockdown may elevate many companies to outperform high market expectation. Source: MacroOps, I/B/E/S Data from Refinitiv

What’s next for equities?

Elevating market expectation

Companies will need to continue along their current upward trajectories for increasingly optimistic analyst expectations to be met. Concerns about overvaluations and stock markets moving into bubble territory have raised the risks of an adverse event having an outsized impact on investor sentiment and global stock markets. As a result, management of volatility in investment portfolios remains as important as ever.

A stimulus-driven bull market?

If we consider the almost unimaginable size of the US stimulus package so far, the $2 trillion in unspent household savings and the additional $1.9 trillion stimulus to come, a period of roaring 20’s type-economy would seem a racing certainty. Much of the stimulus is targeted at the consumer and the lower-paid and is effectively “helicopter money” putting dollars directly into the bank accounts and pockets of individuals. As such, it is unlikely to be spent on property or the stock market which is where so much cheap money ended up during the recovery from the Great Financial Crisis in 2008.

The Fed & inflation

If stock markets were looking for an excuse to take profits, one would have thought that the prospect of an inflationary scare pushing up bond yields would provide it.

To note the recent rise in bond yields is probably an acknowledgement that there are going to be some shockingly large economic numbers coming down the road which, under any other circumstances in almost any period in history, would greatly effect equities. After a surprising move to the upside in February and March which caught bouts of stock sell-offs, 10-year US treasury rate has stabilized for now.

It is the reaction of the Fed in response to a big headline inflation figure that is really what has been bugging bond investors rather than the stock market. Fed Chairman Jerome Powell, appears to be reassuringly relaxed about the coming boom and willing to tolerate a spike well above the 2% target rate if the evidence suggests it is no more than a passing moment of economic giddiness. If the Fed can look through an inflationary boom, so can investors. As proof, major US stock markets have all touched or surpassed their February levels, shrugging off any inflation fears.

Lastly, a willingness to keep rates low by central banks in the US and UK would add even more tailwinds for equities to outperform in May and onwards.

Q1 ’21 witnessed record inflows into equities. Will the rally continue?
Source: BofA Global Investment Strategy, EPFR Global

Biden’s tax hike

The impact of the proposed US corporate tax increase is certainly a concern for some investors but we think a stable and predictable stance from the central banks may promote a longer-term commitment to equities from investors along with a renewed focus on the long-term compounding benefits of dividends in a low interest rate environment.

In the UK for example, the ongoing resumption of normal dividend payments, across companies of all sizes, will make them more attractive – particularly to foreign investors who may have been absent for a few years due to Brexit uncertainty.

Nevertheless, we will continue monitoring this event to remain cautious about its potential long-term impacts on our equity holdings. Any reactions of the market due to this new tax plan may affect our portfolios’ performance in the short-term but the long-term impacts should be limited due to our diversification.

Portfolio Actions

International Balanced & Growth Fund

Sell iShares Gold Producers (IAUP) and replace with WisdomTree Enhanced Commodities (WCOA)

This new ETF provides exposure to a broad basket of commodities including precious metals, industrial metals, energy and soft commodities such as cocoa, sugar and cotton. It uses an optimization strategy to enhance the return when rolling futures contracts.

The inclusion of industrial metals and energy makes the holding more sensitive than the precious Metals Basket to the benefits of the economic recovery and, in particular, may show a greater positive response to inflationary pressure.

A resurgence in infrastructure spending will increase the demand for many commodities over coming years but a dearth of investment in raw materials extraction is likely to see supply remain tight. Furthermore, production yields on several agricultural commodities have been falling while consumption has risen. Recent weather patterns may provide further tailwind for agricultural commodities. The safe haven attributes of gold have diminished since the US election and the rollout of vaccines, while the gold price continues to respond negatively to steepening of the US bond yield curve. Although the new holding does retain an element of gold exposure, it is reduced.

Traditionally, commodity benchmarks have been limited to the extent that they have adopted a pre-defined schedule to manage the rolling of futures contracts, failing to account for particular seasonality and suffering significant negative carry returns associated with the front end of commodity futures curves when markets are in contango. They have also missed out on potential positive carry in backwardated markets. In the Wisdom Tree Enhanced Commodity UCITS, the optimised methodology has led to commodity carry being a primary source of alpha in comparison to the traditional approach.

Note that we retain our exposure in gold miners through L&G Gold Mining (AUCO).

Add iShares Euro STOXX SmallCap (DJSC)

The purchase will provide our portfolios with exposure to small-cap Eurozone equities, which are set to benefit from the consumer boom as the vaccination rollout gathers pace and the economic recovery in Europe continues to accelerate. To add, The Euro area’s business activity indicators (PMI) improvement for a second month while low interest rate expectation serve as tailwinds for small businesses in the area to outperform in the upcoming quarters.


Euro Pacific Advisors Management Team

Portfolio Commentary: Stocks Have Momentum in Q2

Published: April 11, 2021

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold and Precious Metals
  • Peter Schiff

Our Commentary

Now that Spring has sprung, there is a palpable sense of optimism in the air. The hope is that the dark days of winter will prove to have been the peak of the COVID-19 pandemic in the US and Europe, and that global growth will surprise on the upside this year, buoyed by the promising pace of vaccine rollouts and economies opening up.

Vaccine progress

The race to administer vaccines to curb spiraling infections and, in particular, hospital admissions was a feature of the quarter. Globally 15 million doses have been administered but most countries have barely started. Nonetheless, the US and the UK have seen infection rates coming down significantly.

Progress in the EU has been slower. The region is battling to roll out vaccine programs fast enough and infections are rising steeply again, particularly in France where hospitals are filled to capacity.

Irrespective of regional differences, it is clear that the global impact of the pandemic will continue to impact daily life for some time. Governments will attempt to reopen their economies depending on the infection rate’s improvement.

Will Bulls prevail over Bears?

After a turbulent February and March, the US stock market has staged a full recovery and continues to hit new highs. The S&P 500 index climbed past 4,000 for the first time in its history, while the FTSE 100, hindered by a large financial sector and lingering worries about Brexit, has recovered to within 10% of the level at which it began last year.

Cyclical stocks that were hardest hit by the pandemic last year, as well as emerging market assets, have been the primary beneficiaries of the reflation trade that has prevailed during the quarter. The cyclically adjusted price-earnings ratio is now the second highest it has ever been which could be evidence of a speculative bubble. It is, however, usually the pre-emptive tightening of monetary policy that bursts a bubble, we see no sign of that coming any time soon.

Sectors with ties to the economy are poised to outperform in the upcoming quarters. Source: Columbia Threadneedle Investment.

While equity investors’ sentiment is still bearish, their worry is nothing new. A chart of the US stock market recovery from the financial crisis in 2008 looks like one continuous worry-free bull market. Even the eurozone crisis of 2012 barely registers more than a blip. In reality, we know that throughout that decade things certainly didn’t feel so calm. Looking back, there was always a long list of dreads demanding the attention of financial pundits, investors, and global asset allocators. One of them is rising treasury yields.

A closer look into bond markets

In recent daily press, the stock and bond markets have been way ahead of the mood, especially bonds.

Throughout most of the recovery, sovereign yield curves were firmly positive, forecasting a rise in interest rates that never came. Instead, they fell further to nearly zero, providing fuel for the rising stock, bond and property markets.

In the US, UK and even in Germany, bond yields have risen to where they were in January 2020. The direction of travel has been similar across all developed markets. But that is where the similarity ends. The US 10-year Treasury now yields 1.7% whereas the UK 10-year Gilt yields less than half that. The German bond is still in negative territory, yielding -0.3%. This is a big difference.

Combined with the continued strength of the US dollar, some analysts believe treasuries could yet again prove to be a tempting target for asset allocators while only a minority are anticipating the rise in yields to directly precipitate a bear market in equities.

Central Banks will keep rates low…for now

Inflows from the rest of the world would ultimately act to put upward pressure on the US dollar. This, in turn, would alleviate inflationary pressures in the US – which is what everyone seems to be worrying about.

Perhaps this explains why the US Federal Reserve appears to be so sanguine about its own inflation targets? The European Central Bank, perhaps fearing a sell-off in its own government bonds, has stepped up its bond-buying program to keep yields down. While the US can seemingly prosper with relatively higher borrowing costs, clearly the concern of the ECB is that the eurozone cannot.

The Fed Reserve doesn’t appear to worry about inflation surprises that many investors are fearful about. In March 18th’s FOMC meeting, the Fed has decided to keep rates near zero until 2023 despite the fact that the central bank now sees inflation running to 2.4% this year, above its previous estimate of 1.8%. Core PCE inflation for 2022 is now expected at 2.0% and 2.1% in 2023. Source: Bloomberg.

In addition, because rising 10-year yields push up expectations of future rate rises, the UK could also have a problem with its sensitivity to rising base rates. This is because the payments for UK mortgage borrowers are linked to short rates in a way that those of US borrowers, linked to 25-year rates, are not. The Federal Reserve may be reluctant to raise base rates back up to 1.5% but for the Bank of England it is almost unthinkable.

Whatever directions that bond yields may go, our international funds are well-diversified to be resilient against the current market’s volatility and fears.

Precious metals

Will gold rally again in April?

The prospect of inflation that so bugged investors actually came in the form of rising asset prices rather than in the cost of living. The gold price doubled in the years following the financial crisis and while there has been some profit taking since the US election, gold retains many attractions, from being a potential inflation hedge to a safe haven.

We retain exposure to the gold price as inflation, rather than Covid-19, appears once again to have been investors’ main concern since the start of the year.

Stock market outlook

Economically-sensitive stocks should continue to perform well, albeit they remain susceptible to bouts of volatility sparked by movements in bond yields. The $1.9tn US fiscal package, continued monetary policy support, rising vaccine supply and distribution, and significant amounts of corporate and consumer cash waiting to be deployed are tailwinds of equity values.

Earnings continue to beat consensus analyst estimates and conservative company guidance with earnings momentum greatest in energy, materials, financials and information technology.

Technology remains within the top five earnings momentum plays, even though mega-cap technology stocks were the most affected by the reflation trade and rise in bond yields during the first quarter. Economically-sensitive sectors, including cyclical stocks and reopening plays, could surprise further to the upside.

Moreover, after a decade of over-predicting inflation, central banks will require strong evidence of wage growth before reducing stimulus this time. This is supportive of positive stock performance in the future.

Portfolio Actions

Historically, April has been bullish for US stock markets. Despite the devastating impact of COVID-19 to the global economy, we have seen bullish sentiment remaining resilient in many stock markets. However, rising treasury yield remains a threat to Tech stocks that we cannot undermine.

We believe that our funds with exposure to US stock markets are currently well-diversified so that an unexpected performance of either the stock or bond markets may become a neutral factor to our portfolios’ performance.

Despite the Fed’s reassurance of keeping inflation under control, investors still fear that inflation may surprise to the upside in the short-term. Hence, we maintain our exposure in gold to capture both shot term and long term price appreciation of precious metals, which are affected by current easy monetary policy and expansionary fiscal policy of governments to jump start their COVID battered economy.

Lastly, we will continue to identify new trends and seeking exceptional investment opportunities to add to the growth potential of your portfolios.


Euro Pacific Advisors Management Team

Portfolio Commentary: A New Megatrend in 2021

Published: February 05, 2021

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold & Precious Metals
  • Peter Schiff

Our Commentary

Market Overview

The past year has brought not only huge market swings between risk-on and risk-off phases but also a staggering divergence of returns between regions and investment styles. In equities, much of this can be explained by sector performance.

The outlook for inflation is not yet strong enough for the sector rotation of November and December to have continued at the same rate in January but many investors are expecting the recent recovery of cyclical/value shares (consumer cyclicals, energy, industrials, and financials) to continue and the valuation gap to close.

Last year, it was a COVID-19-determined market, with sectors that benefited from the pandemic doing well and those that did not having a torrid year. The best performing sectors included tech shares, consumer defensives, basic materials, freight and logistics and homeware. The worst performers were oil and gas, financial services (banks), retail estate and airlines.

The graph below captures the state of play in the sectors towards the end of last year:

Consumer Staples and Informational Technology led in performance last year.

Sector divergence remains in focus

As vaccines are being distributed, we are optimistic to see how the sectors will perform this year.

In its 2021 Global Outlook, Blackrock has divided companies into three categories based on its bottom-up analysis:

  1. Those in trouble that may fall further
  2. Those that that are hurt but should recover
  3. Those that are strong and could get stronger

The report sees airlines in the first bucket because business travelers account for a disproportionate share of profits and expects that companies will wish to continue benefiting from the cost savings made by holding events virtually.

Housing, materials, and autos fall into its middle bucket as the interest rate-sensitive parts of the US economy are already recovering strongly.

Meanwhile, the tech sector is in the third category as it leverages accelerated trends, offers scarce growth amid rock-bottom yields, and boasts high profit margins.

In the next paragraph, we will see how this sector divergence affects stock indices and their valuation.

Impact on indices

For the S&P500 index metrics such as price-to-sales and price-to-earnings are often quoted as evidence of overvaluation, but it is important to consider the impact of the high weighting now attributed to mega-cap tech stocks.

These stocks are generally more highly-rated, at least partly justified by high earnings and cash flow, so as the share prices have rallied it is only natural that the P/E and P/S ratios of the S&P 500 have risen.

The table below generated by Deutsch Bank shows sectoral PE ratios and demonstrates how shifts in sector performance can move index-level valuations. It is worth noting a theoretical scenario where the ratios applied to an index could rise without it being the case for any individual sector, purely due to sector performance divergence.

Index 1-year Return 3-year Return General Estimated Next Year P/E (as of 28/01/2021)* General Estimated Next Year P/E (as of 29/01/2018)
S&P 500 Index 15.6% 31.8% 19.4 16.9
S&P 500 Consumer Discretionary Sector 35.5%s 53.9% 27.5 19.4
S&P 500 Consumer Staples Sector 3.2% 11.2% 19.1 18.2
S&P 500 Energy Sector -26.9% -46.5% 16.0 20.4
S&P 500 Financials Sector -2.2% -2.1% 12.2 13.1
S&P 500 Healthcare Sector 13.6% 27.6% 15.4 16.1
S&P 500 Industrials Sector 5.3% 7.9% 18.5 17.1
S&P 500 Information Technology Sector 36.6% 93.1% 25.0 17.9
S&P 500 Materials Sector 22.3% 13.0% 18.5 16.6
S&P 500 Real Estate Sector -6.7% 16.2% 43.0 34.6
S&P 500 Telecommunications Sector 7.2% 45.2% 25.2 19.3
S&P 500 Utilities Sector -8.6% 22.6% 16.9 15.7

*based on earnings estimates for 2022

Understanding the misunderstanding about the current valuation of index, we will continue to adopt the wait-and see stance in the short and medium-term for our holdings of index ETFs. Until the sector performance begins to shift, which will affect the indices valuation, we will keep monitoring and wait for the right time to adjust their weightings in our International Growth and International Balanced Fund.

A new battleground between the US and China

This year, another key driver of financial markets is expected to be the relationship between the US and China. Although Joe Biden is likely to take a less confrontational approach than his predecessor, both countries are likely to seek self-sufficiency in critical industries.

We continue to ensure that strategies contain diversified exposure to both poles of growth. As China opens its capital markets to global investors, the spotlight may switch from the bilateral trade deficit to climate and human rights. As this trend is playing out slowly, we are also beginning to steadily reflect this shift in our exposure to China.

Global growth recovery?

The pandemic continues to wreak havoc in many parts of the world and expectations of short-term economic performance have weakened. Furthermore, vaccines now appear not quite the silver bullet hoped for when it comes to opening up the global economy while supply constrains rollouts and the effectiveness against virus mutations remains uncertain.

Many commentators, including JP Morgan, still expect strong, back-end-loaded global growth this year and tailwinds continuing to underpin stock markets in a yield-starved world. Nonetheless, we remain risk-conscious and prepared for all eventualities.

China and EM are expected to see the most GDP growth in 2021.

The rise of TaaS

In recent news, Amazon is reported to order 100,000 electric vans last year. While this is good news for the electric vehicle market, there is a much larger trend simmering behind the lime lights of Tesla (NASDAQ:TSLA) and NIO (NYSE:NIO) .

According to FN Media Group, the Transportation-as-a-Service (or “TaaS”) industry is expected to reach a market valuation of $8 trillion , of which includes ride sharing in personal and freight transport, food and drone delivery and distribution market.

In the next decade, we believe the sharing “gig” economy, along with autonomous vehicles, electric vehicles (EVs), ESG investing and connectivity will be the future as the world is moving away from buying and owning gasoline vehicles largely due to rapid urbanization, increasingly gridlocked roads, ever-rising CO2 levels and the fact that we are using our cars at a falling rate, according to FN Media Group’s report. More importantly, the TaaS industry is where all four macrotrends will intersect.

Portfolio Actions

Sector Rebalancing

We continue to adopt our cautious stance and refrained from rotating the sectors because there are still gaps between the sectors’ performance and their valuation.

Additionally, sector rotation may not happen until the next quarter when the US vaccination program begins to bear fruits and its positive effects on the economy begins to kick in with rising inflation. Only time will tell.


In terms of our call on TaaS’ emergence, we are slowly building our positions in relevant industries and sectors. For example, within our investment in USA ESG ETF and the US market ETFs, there are holdings in Uber and Dominoes, both of which are members of TaaS.

Environmental, Social, and Corporate Governance

To note, our ESG investments, both US and Global, also have exposure to other aspects of the supply chain of TaaS-related companies. Holdings include Albemarle (NYSE: ALB), FMC Corporation (NYSE:FMC) and Livent (NYSE:LTHM) of which belong to the EV supply chain and their use through the gig economy and connectivity. There is also exposure to Tesla rather than Rivian, which is still private.

In the last six to twelve months, we have slowly increased our ESG exposure because we feel these are areas that will take on greater significance for investors and companies alike with the integration of greener and socially responsible values a key driver in decision making and development.

Furthermore, as more candidates begin to meet our ESG criteria, they may be added to the equity portfolios over time. This steady process will also contribute to our exposure to TaaS in the long-term.


Euro Pacific Advisors Management Team

Portfolio Commentary: Cautious Optimism for 2021

Published: January 9, 2021

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold & Precious Metals
  • Peter Schiff

Our Commentary

A look back at 2020

Describing 2020 as a roller coaster ride for investors does not do justice to the unprecedented series of events ushered in by the pandemic and the lockdowns across the world.

Although many markets sold off steeply into bear market territory as the pandemic escalated in March, the US Dow Industrial Average still managed to deliver 7% growth for the year after breaking through 30,000 for the first time in November. European indices including the UK FTSE 100 and equity markets elsewhere ended the year significantly lower.

As with equities, fixed income assets like sovereign debt sold off sharply in March but recovered quickly as announcements of central bank intervention soothed worst fears.

Stock market gains, however, bore little relation to the economic havoc wrought by the virus. Most countries experienced severe economic losses in the second quarter of the year before bouncing back in the third quarter when lockdowns were lifted.

The world economy ended the year on an uncertain note, with the impact of second and, in some instances, third waves of infections still to be quantified across developed and most-affected emerging market countries.

China stood out as the country that most quickly brought the virus under control and became the first economy to find its feet again. As such, it is expected to be the only country that will achieve positive growth in 2020.

Geopolitical uncertainty will prevail in 2021

It hasn’t just been the health and economic crises that made the financial market outlook so challenging to anticipate.

The US elections and Brexit negotiations have also dominated sentiment, and as we head into the new year, the fallout from these geopolitical events continues to hold sway.

US President Donald Trump made controversial presidential pardons and continues to challenge the Electoral College results.

In the UK, which continues to suffer severe economic hardship as a result of the pandemic, the last-minute Brexit agreement has at least averted the worst scenarios of short-term economic disruption.

China-US trade tensions also continued to hang over global geopolitical relations. However, while still likely to take a hard stance against China, a Biden presidency is expected to see the relationship between the two countries become less confrontational and volatile.

Vaccines give cause for hope

Looking ahead, much will depend on the successful rollout of the vaccines that have been given emergency authorisation. The prevailing hope is that the bulk of the populations in the developed world may be vaccinated by the middle of the year. Consultancy McKinsey believes the positive news about the vaccines in November makes it possible that herd immunity could be achieved by as early as the second half of 2021 and captures its thinking in the graph below.

But there are significant risks to this outlook. In addition to logistical obstacles, surveys like McKinsey’s (below) indicate up to half the US population will or may be unwilling to be vaccinated. Without a significant uptake, herd immunity will not be possible and the health impact of the pandemic is likely to be longer-lasting than currently factored into many of the economic forecasts for next year.

Source: McKinsey & Co.

On the positive side, the Organisation for Economic Co-operation and Development (OECD) is expecting a brighter economic outlook for 2021 but cautions that the recovery will be gradual in its December World Economic Outlook. The organization sees vaccination campaigns, concerted health policies and government financial support as likely to result in global growth of 4.2% in 2021 after an equivalent fall of 4.2% in 2020.

The expected bounce-back is forecasted to be most robust in Asian countries where the virus appears to have been brought under control quickest. Elsewhere, even by the end of 2021, many economies will not be back to 2019 levels, according to OECD’s latest projections:

Meanwhile, Oxford Economics sees a mid-year boom following a “meaningful and sustained” lifting of restrictions in March or April and has raised its 2021 forecast for global growth to 5.2% from 4.9% based on a faster vaccination rollout than previously assumed. It estimates a 4.0% decline for 2020.

The investment case for emerging markets during 2021 is promising, particularly in Asian emerging economies that have managed to get the virus under control earlier than their emerging counterparts. Although vaccine rollout may be slower, more substantial demand from advanced economies, rising commodity prices and the ongoing weakening of the US dollar should all prove supportive for emerging markets.

India stands out as a country that has managed to turn around its economic fortunes, an achievement recognised by sovereign credit rating agencies which have upgraded their 2020/2021 fiscal year growth forecasts for the world’s second-largest emerging market. S&P Global Ratings now expects the contraction in India’s economy during the year to March 2021 to be 7.7% compared with its previous 9% forecast decline.

Our Equity Outlook

Barring a significant deterioration in the outlook for overcoming the pandemic, the investment outlook for risk and cyclical assets looks reasonably promising. Economies look likely to gather momentum again. Investors will seek growth potential in an environment where monetary and fiscal policy stimulus is likely to remain in place for the next few years and interest rates are likely to stay near zero.

UBS expects fiscal stimulus and the rollout of a vaccine to drive the economic recovery and outperformance in earnings for mid-cap stocks and select cyclical sectors, relative to large-caps.

While the Big 5 tech stocks are largely seen to have run their course, Asian tech stocks offer attractive potential. Notwithstanding anti-trust scrutiny, the technology sector will see strong secular growth in digital advertising, e-commerce, cloud computing and the 5G rollout.

The Inflation Question

The one much-debated unknown—whether inflation could take hold during 2021 against a backdrop of easy money—is the one risk that needs to be monitored carefully during the year. Opinion is still divided on how much of a risk potential inflation represents.

The concern is that if inflation does reappear, it would be challenging to eliminate given the multi-trillion-dollar stimulus programs needing to be unwound. Nevertheless, investors are increasingly seeking inflation protection instruments, as shown in the graph below.

Ethical investing comes to the fore

We have been reporting about the rise of funds that prioritise environmental, social and governance (ESG) considerations in their mandates since November of this year.

One promising outcome of the 2020 Covid-19 crisis has been the increased awareness and understanding of how material the health, social or environmental risks can be when faced with a crisis of such epic proportions. This awareness translated into a profound shift in investor appetite with flows into these ESG funds picking up materially during 2020 and expected to continue during the years ahead.

There’s no doubt that the consequences of 2020’s devastating confluence of health, economic and geopolitical events will be felt for years to come. We are, however, cautiously optimistic about the global economic outlook given the light at the end of the tunnel that the vaccines provide.

Portfolio Actions

As all previous financial market crises have shown, investment opportunities do arise during times of uncertainty and volatility. Those investors who can identify these through robust, fundamental analysis, and who are prepared to wait for the growth potential to be unlocked, stand to benefit most.

We continue to seek such opportunities to add to the growth potential for your portfolio. The portfolios’ composition remains unchanged as we stay cautious while awaiting new economic data before opening new positions.


Euro Pacific Advisors Management Team

Portfolio Commentary: COVID-19 Sparks Green Investment Revolution

Published: December 15, 2020

euro pacific advisors fund manager portfolio 

Relevant Strategies

  • International Balanced
  • International Growth
  • Natural Resources
  • Gold & Precious Metals
  • Peter Schiff

Our Commentary

November Review

In November, a Biden projected win in the US elections and Pfizer breaking the news that their positive trial results saw most global stock markets rally strongly, with European stocks leading the way:

Following that first breakthrough, three companies came through with vaccines purported to deliver better-than-expected success rates at combatting COVID-19. This event has buoyed expectations of a global economic rebound from as early as the second quarter of 2021 onwards.

A large part of the developed world’s population may be vaccinated by the middle of 2021 and the prospect of seeing an end to the pandemic saw the US Dow Jones Index breaking 30,000 for the first time.

The US elections also proved positive for US stocks, with expectations that a Biden administration would deal more decisively with the exponential rise in infections experienced during November. A Biden presidency is also expected to place combatting climate change back on the federal government’s agenda, and the administration will take a more positive stance on global trade.

A lasting and unexpected effect of COVID

For all its economic damage, COVID-19 has had a profound effect on investor and broader societal attitudes towards sustainability. The pandemic has been an eye-opener for many investors regarding the genuine risks posed by the ‘S’ in Environmental, Social and Governance (ESG) investment considerations.

Until now, the focus has been on environmental and governance. But the pandemic has put the spotlight on social sustainability. The health crisis prompted companies to take labor standards, gender equality and human capital management seriously as they have had to prioritize the mental and emotional health of employees in the shift to remote working.

These realization further strengthens our view that ESG funds will become more popular as investors are catching up to this emerging trend.

Assets in ESG funds reach record levels

Against this backdrop of changing perceptions of the role green investments can play in delivering sustainable performance in the future, significant funds have flowed into ESG and other green investments this year. Morningstar figures show that some €52.6bn was invested in ESG funds during the third quarter of 2020, increasing assets under management in ESG funds to a record €882bn.This burgeoning appetite for sustainability has also seen the launch of a significant number of new ESG funds.

According to a recent report by PwC, assets under management in ESG equity funds in Europe could grow to between €2.6trn and €3.6tn in the next five years – potentially comprising almost 60% of European investment funds.

A critical factor that will determine ongoing growth in demand for green investments will be whether these investments perform at least in line with (and hopefully ahead of) investments that don’t prioritize ESG.

Morningstar’s research found that European equity funds with higher sustainability scores have generated better risk-adjusted performance since 2016. On risk specifically, it found that the level of sustainability was negatively related to the value at risk (VaR) of the fund, which means that funds that have higher sustainability scores are less prone to experiencing extreme losses.

This year, the performance of funds with a sustainability focus has been robust and most sustainable funds have outperformed non-ESG funds over one, three, five and ten years. Of course, sustainable investment strategies are not a homogenous group, as highlighted in the graphic below.

ESG investing is the second largest group by dollar value.

Green or ‘greenwashed’?

The unprecedented growth in demand for green investments has inevitably been accompanied by skepticism about the extent to which companies and investment managers may be engaging in ‘greenwashing’ – overinflating actual sustainability actions and achievements. Earlier this year, for example, Ryanair Holdings’ claim to be “Europe’s lowest-emissions” airline was challenged by the Advertising Standards Authority, which ruled the claim could not be backed up.

It is particularly hard to detect whether investment managers are fully incorporating the spirit of ESG considerations into their investment processes or whether they are paying lip service to these whilst doing little to take the actions that deliver positive sustainability outcomes.

Underpinning the momentum behind green investing is the fact that sustainability is at the heart of the recovery plan for many governments. Investments targeted by these plans include large scale renewables, clean transport, sustainable food, and shortening and diversifying global supply chains.


With COVID-19 inadvertently offering a window into the devastating impact a big-ticket environmental or social crisis could have on the world as we know it – with profound implications for the financial markets – the demand for green is unlikely to dissipate. It is easy to envisage a time when being green is so ordinary that it is no longer a differentiating factor.

Until then, the hard work will be in determining whether funds are genuinely green or whether they are merely engaging in greenwashing to benefit from the wave of demand for funds that invest for the good of all. Consequently, we prefer not to put ethical labels on our portfolios or to invest in funds purely because of a green label. Instead, we use analysis of the underlying components and factor in sustainability scores as part of our overall investment process. Evidence increasingly demonstrates the investment merits of this approach, in addition to the broader benefits.

Portfolio Actions

While the recent vaccine breakthrough and a Biden victory in the US elections have positive economic implications for European and US equities, we will await more positive data to verify economic recovery signs before rotating out of emerging markets equities.

Our International Growth and International Balanced Fund maintains an equity tilt towards companies that focus in ESG criteria—environmental, social and governance.

For International Balanced Fund, we have replaced both the US TIPS and the US Treasury 3-7 year bonds with an increased allocation to corporate fixed income for International Balanced Funds. This change is designed to increase the return profile of this asset class while incorporating an ESG element.

The iShares Global aggregate bond invests in government, corporate and securitised bonds which are diversified across the globe. All exposure in this asset is to investment grade bonds. This still incorporates US treasuries but increases the corporate bond aspect.

The iShares USD Corporate Bond SRI 0-3 year investment provides short dated exposure denominated in USD to investment grade corporate bonds across several sectors. The company debt is screened and only includes those with a top 4 MSCI ESG rating and excludes many issuers involved in weapons, tobacco, adult entertainment, gambling and nuclear power to name a few.


Euro Pacific Advisors Management Team


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