Investors’ lack of confidence in economic policy decision-makers continues to weigh heavily on markets. In view of the persistently high volatility, the portfolio shares of Swiss real estate and conservatively oriented hedge funds will be slightly increased…...
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Investors’ uncertainty is not only dominating the mood in financial markets, but is increasingly spreading to the real economy, too. Particularly in Switzerland, we will be affected by this even more acutely since the still too expensive CHF is clearly slowing down economic growth. At the global level, there are unfortunately not many effective instruments left for averting a possible recession. Government spending programmes, cuts in interest rates or buying up government bonds – all of these measures have already been taken, without, however, achieving the intended goal. Central banks are now faced with the task of preventing a further deterioration of the situation. The ECB, for example, must be prepared to continue buying Italian and Spanish government bonds, thereby ultimately stabilising the banking system.
Less risk in exceptional times
The probability of very high, but also of very low yields has increased. Consequently, our strategy is slightly different from what it would be under “normal” market conditions. Despite a favourable valuation of stock markets in general and an extremely low valuation of European stocks, we are not going to implement any major overweight in equities. Rather we are readjusting the equity share, that had fallen due to the market corrections, to its weight in the benchmark. At the same time, we are halving the share of private equity investments, which will probably come under heavy pressure in an economically difficult environment, while increasing the share of widely diversified hedge fund investments.
Government bonds from Greece, Portugal and Ireland are still out of the question for us, and we are very reserved in the case of government securities from Italy and Spain. We still overweight corporate bonds against government bonds. On the one hand, the default risks are at a below average level, despite a slight increase, on the other hand we are deliberately looking for alternatives to government bonds. With the exception of portfolios in CHF, where we underweight the long terms, we are maintaining the neutral duration across the board. Investments in Swiss real estate have held up comparatively well and now account for a greater share of the portfolio. As their interest return is clearly better than that of Swiss government bonds, we are maintaining this overweight. In the case of currencies, we are refraining from wagers for the time being.
Source: ETFWorld – Swisscanto (Thomas Härter – Head of Investment Strategy)
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