Investors put on rose-colored glasses. Golden November of mutual funds

After a long time, the markets began to see the world more rosy. Investors believe that a reduction in central bank interest rates is not far off and that tight monetary policies will be eased.

With this, they are supposed to make loans for companies cheaper, and therefore investments in development, which will one day bring higher profits.

U.S. stocks posted their second-best November since 1980. Growth was not slowed by labor market numbers or a drop in savings levels due to strong consumption. But American consumers’ appetite for spending can quickly pass. The first sign of a slowdown in the US economy may be the increasing number of credit card debt problems.

The Czech economy does not have the best prospects. Gross domestic product fell in the third quarter, and the statistical office confirmed the decline in year-on-year data as well. We are in a recession zone. The real gross national product has not even reached the pre-covid level, we are one of the slowest growing countries in Europe.

The German economy, to which ours is most closely linked, will not pull us out of recession this time. It itself fell in the last quarter and is not far from recession.

Even this harsh macroeconomic data did not deter investors from buying shares, so, for example, the German DAX index is at its maximum values.

Bonds, on the other hand, were helped by lower inflation, which increases the demand for long-term yields. So bond prices in the funds are rising.

Inflation is falling almost everywhere. One of the few exceptions is the Czech Republic. Domestic inflation has risen above eight percent and will stay there for a while. However, this does not mean that the price would rise so sharply. It is a statistical consequence of how the government subsidized energy last October.

However, this effect will soon disappear and, according to the forecast of the Czech National Bank, inflation will quickly reach the level of three or four percent in the first quarter.

Less fear of inflation and high interest rates had a positive effect on the prices of all financial assets, which is why both stock and bond mutual funds showed more than solid figures.

In addition to the expected looser monetary policy, the solid results of companies and lower energy prices contributed to the better mood on the markets. Unlike last year, equity investors are enjoying an above-average appreciation this year. But there are also a lot of risks that are being forgotten: there is still a certain probability of a severe recession, there are geopolitical risks, and even rates may not fall as expected.

The average performance of koruna globally diversified equity funds offered in the Czech Republic was around 6.2 percent in November. Over the past 12 months, investors are in the red by an average of 7.3 percent.

The PIF-SPEC index, in which Partners ranks equity funds that specialize in shares of specific regions or economic sectors, had an average performance of 4.9 percent in November. The main reason for the difference is the low performance of funds focused on Central and Eastern Europe and shares of underdeveloped countries. For example, the Czech Stock Exchange added only 1.7 percent in November, while the global stock index rose by nine percent.

The yields of Czech government bonds fell not only in line with the yields of government bonds abroad. The state budget deficit also developed better than expected. In addition, the rating agency Moody’s improved the rating outlook for the Czech Republic from negative to positive.

Lower inflation brings more demand for long-term bond yields and pushes their prices higher. Bond funds have therefore performed above average this year. Their shareholders can look forward to the fact that in the future their reserves will be valued not only nominally, but really. The yield on the bonds held is between four and six percent, well above the central bank’s inflation target.

The average appreciation of bond funds (PIF-DLUH index) over the last month was 1.2 percent. Over the past 12 months, conservative funds are up 6.1%.

Riskier bonds (PIF-HY index) ended November with a positive appreciation of 2.4 percent, thanks to the positive sentiment on the stock markets and the decrease in risk premiums. Year-on-year, they are up by 7.4 percent.

When both stocks and bonds rise, mixed funds, which are made up of both types of assets, have no choice but to rise as well. Even the mixed funds therefore attributed a positive evaluation to their owners. Their average value increased by 3.7 percent month-on-month and they are 5.5 percent in profit year-on-year.

Martin Mašát

Portfolio manager at Partners investment company. He graduated from the University of Economics and the Institute of Economic Studies at Charles University. He holds the prestigious international title of CFA (Chartered Financial Analyst)…. More articles by the author.

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