Quarterly Strategy Q2 2025 - R-co Valor & R-co Valor Balanced

From tariff chaos to stock market euphoria

 The second quarter unfolded in two distinct stages. First, the markets experienced a marked bout of nervousness in early April, leading to a sharp correction triggered by the Liberation Day¹ tariff announcements and President Trump's reversals. The VIX² index peaked at 52%, making April the most volatile month since March 2020 and even surpassing the spike caused by the eruption of the Ukrainian conflict³. However, the introduction of a 90-day truce gave the markets a welcome respite. This lull, combined with the announcement of two trade agreements with the UK and China, rekindled investor optimism, propelling some indices above their March 2025 levels and towards new all-time highs. Against this backdrop, buying flows from US retail investors remained steady, while systemic funds, which had been forced to reduce their exposure during the volatility spike in April, redeployed their liquidity. The S&P 500 rose by 10.8%³, driven once again by technology stocks, with the Magnificent 74 rebounding by 20.4%3. The recovery was less pronounced in Europe, with the Euro Stoxx 50 posting a return of 2.7%³ on expectations of greater clarity on the geopolitical and trade fronts. Incremental openness of the Chinese government towards the private sector, and the agreement of preliminary terms with the United States, helped the Hang Seng appreciate by 5.7%³.

R-co Valor

R-co Valor ended the second quarter up 2.0%⁵. Despite the depreciation of the dollar, exposure to US equities stood out as the main contributor to performance, accompanied to a lesser extent by Latin America and Canada. The rebound in US equities took place in a climate of optimism. The markets have gradually ruled out the risk of tariffs being introduced, as mooted on Liberation Day, which would have raised trade barriers to their highest level since 1930³. This scenario, feared for its potential recessionary effects, led the IMF in April to revise its forecasts for US GDP growth to 1.8%, the slowest pace since the 2008 financial crisis, excluding the pandemic period. This prevailing optimism could, however, turn to complacency: investors have reacted with a degree of indifference to the rising tensions between the United States and Iran, dismissing the risk of the closure of the Strait of Hormuz and its potential repercussions on energy prices and the profitability of companies, particularly in Europe. Europe, meanwhile, remains exposed to persistent trade uncertainty, with President Trump repeatedly threatening to impose tariffs on Member States. Transatlantic negotiations are struggling to make progress, hampered by the absence of a single voice within the European Union and by divergent interests, which slow down the formulation of common positions. Against this backdrop of institutional discrediting in the United States, the dollar has continued to depreciate, falling by around 12%³ against the euro since the start of the year - its worst first-half performance since 1973.

At the same time, China has introduced a number of measures to support its economy: weakening the renminbi against the dollar, cutting key interest rates in April, and reducing banks' reserve requirements in order to stimulate credit. These initiatives are aimed at stimulating domestic consumption. Domestic consumption showed signs of recovery in June, with retail sales up 6.4% year-on-year³, the strongest pace since December 2023. From a sector point of view, financials, technology and mining stocks stood out as the main contributors to performance, buoyed by Coinbase, Uber and copper mines. The main detractors were luxury and healthcare, still affected by uncertainties linked to international trade and regulatory developments.

Within R-co Valor, exposure to equities stood at 77% at the end of June⁵. Against a backdrop of high volatility, we adopted a tactical and opportunistic approach in the second quarter. At the beginning of April, two buyback programmes representing 2.5% of assets under management were implemented5, in addition to the one carried out at the end of March. At the same time, a number of targeted purchases were made, taking the equity allocation to 79% in the first week of the month⁵, as markets begun to price a risk premium more in line with the uncertain environment. The luxury sector was reinforced via LVMH and Richemont, as were financials with Huntington Bancshares and Citigroup. Positions were also increased in the industrial, technology, healthcare and rail transport sectors, with no geographical bias. We favoured stocks that had overreacted to trade tensions (Bombardier) or had been unfairly punished (Grab, Meta). Among mines, profits taken on Agnico Eagle were redeployed to Freeport McMoRan and Ivanhoe Mines, increasing our exposure to copper. In May, profit was taken on Uber and MercadoLibre, while opportunities were seized in healthcare (Thermo Fisher, Medtronic, Pfizer) and energy (AES). In June, we trimmed Meta, Coinbase and Walt Disney, while continuing to buy in healthcare (Thermo Fisher, Biomarin) and luxury goods (LVMH). Ivanhoe Mines was strengthened despite the temporary shutdown of a mining site, consolidating our structural position in copper. In the current environment, we are maintaining a highly selective approach to investment opportunities, with valuations reflecting optimistic, even complacent, sentiment towards the many geopolitical risks. Our historically high money market exposure, around 23% of the fund⁵, enables us to contain some of the market volatility and seize the opportunities it presents.

R-co Valor Balanced

 R-co Valor Balanced has 43% exposure to equities and 52% to bonds, with the remainder invested in money market and similar instruments⁵. The fund returned 2.0% over the quarter⁵.

Equity Pocket

The equity allocation of R-co Valor Balanced mirrors that of R-co Valor. The transactions carried out and the positioning are identical.

Fixed Income pocket

 US monetary policy remains on hold amid budgetary and geopolitical tensions. The Federal Reserve has kept its key rates unchanged at 4.25% to 4.5%³, with Jerome Powell stressing the need to assess more precisely the impact of rate measures on inflation and growth before making any adjustments. In the first week of April, fears of renewed inflation linked to the tariffs, combined with President Trump's virulent criticism of the Fed, caused the yield on 10-year Treasury bonds to soar, recording their biggest weekly increase since November 2001. At the same time, the Republican-backed One Big Beautiful Bill passed a decisive stage in the Senate. Providing for an extension of the 2017 tax cuts, the bill could, according to the US Congressional Budget Office, increase the federal deficit by $3.3 trillion by 2034³, taking the ratio of public debt to GDP to 124%³, 700 basis points above its January estimate. Against this backdrop of fiscal uncertainty, Moody's downgraded the US sovereign rating to Aa1, joining Fitch and S&P. Bond markets reacted immediately, with 30-year yields temporarily back above 5%³. Expectations of a rate cut were revised downwards, from four to two by the end of 2025, with the market now perceiving a more moderate impact of tariffs on the US economy, but also a deterioration in employment data. In Europe, the ECB cut rates twice, bringing the deposit rate down to 2.0%⁶, judging that inflation was under control. Germany, for its part, broke with budgetary orthodoxy, approving an investment plan worth 847 billion euros between now and 2029, taking public debt to 82% of GDP³, i.e. 20 points above the 2024 level. On the markets, the decline in volatility was accompanied by a tightening of risk premiums: the iTraxx Crossover index, a barometer of high yield credit, fell from over 400 basis points in April to 28³ at the end of June³. The primary market was very active in the second quarter, with companies taking advantage of favourable conditions to refinance their debt. In particular, June stood out, with almost €65 billion issued by non-financial companies³, a much higher volume than the previous year (€39 billion) and one of the highest on record. This momentum was reflected in a tightening of issue premiums, particularly in the Investment Grade segment7, and an average cover ratio of 3.3 times, reflecting strong investor appetite. The High Yield market8 was also very active, reaching a monthly record of €22.4 billion³, with a high proportion of B-rated securities. The quarterly performance of euro-denominated corporate bonds remained positive, with the Investment Grade and High Yield euro indices posting returns of 1.7% and 2.1% respectively³. Activity in the bond portfolio was marked by active and selective management in the second quarter. In April, we slightly reduced the portfolio's sensitivity by trimming our position in 10-year German Treasury bonds, which we had started the previous month. In a lacklustre primary market, we were present in the Investment Grade segment, with targeted purchases of HLD Europe and Tikehau bonds, which offer an attractive issue premium. For the first time this year, we also participated in a High Yield issue, that of Lottomatica, whose improved fundamentals were hailed by Moody's (rating upgraded to BB). In the wake of the widening of European spreads9following Liberation Day, we temporarily reduced our CDS10 cover on the iTraxx Main index, before restoring it to its initial level at the end of the month. In May, we pursued our selective strategy with two new Investment Grade issues - Matmut and Nexi - offering an attractive risk/return profile. In June, activity intensified with the purchase of Informa and Kering Senior Unsecured securities, as well as Julius Baer (Senior) and Klésia Prévoyance (Subordinated) financial bonds. We continue to maintain our CDS hedge on the Main iTraxx index to protect against any resurgence of systemic risk. The sensitivity of the bond portfolio was 4.2 at the end of June; the yield was 3.3%. (Recommended investment horizon 3-5 years) ⁵.

*The actuarial yield is the yield obtained by holding a financial asset until maturity (remaining life) and reinvesting the interest at the same actuarial rate.