Value outlook
Net-zero targets
Bond allocation
Spacs viewpoints
Net-zero targets
Spacs viewpoints
Bond allocation
Value outlook
Spacs viewpoints
Net-zero targets
Value outlook
Bond allocation
Jean-Paul Jaegers
Enrique Marazuela
Lars Kalbreier
Jeffrey Sacks
The first months of 2021 were defined by a rotation to value. Do you think value still has some room to go in the next couple of months? Are you planning to add exposure to value stocks and if yes, which funds are you using?
Despite the swift and significant rotation to value, valuation spreads remain a little elevated, though not at the extremes we saw last year. That said, predicting a specific style, or any other asset performance in the short-term is tricky.
In general, there is little evidence that timing exposures (versus a buy and hold approach) to factors or styles is sufficiently profitable. As a result, we are trying to keep our portfolios style-neutral to mitigate the inevitable swings in performance between styles. This is another lens through which we keep our clients diversified – not just across sectors and countries.
Jean-Paul Jaegers
Location:
Geneva
Firm:
Barclays Wealth Management
Job:
Head of Asset Allocation
The first months of 2021 were defined by a rotation to value. Do you think value still has some room to go in the next couple of months? Are you planning to add exposure to value stocks and if yes, which funds are you using?
As the global economic recovery consolidates and debt yields normalise to some extent, we are likely to see a better relative performance of value over growth.
However, the current low correlation between both investment styles is very valuable when it comes to diversifying our portfolios, so we recommend maintaining balanced positions between both styles.
Enrique Marazuela
Location:
Madrid
Firm:
BBVA
Job:
CIO
The first months of 2021 were defined by a rotation to value. Do you think value still has some room to go in the next couple of months? Are you planning to add exposure to value stocks and if so, which funds are you using?
Most of the rotation from growth to value has already taken place. Indeed, while style rotations occur on a regular basis, the main driver for the recent outperformance of value was the upbeat perspective of an economic reopening following the release of effective vaccines in December last year. This was accompanied by a sharp increase in yields which hit growth stocks particularly hard. Now that the economic reopening is mostly discounted and yields have stabilised, we are keeping our exposure to value stocks but would not substantially add to it.
Lars Kalbreier
Location:
Zurich, Geneva
Firm:
Edmond de Rothschild
Job:
Global head of investments and CIO of wealth management
The first months of 2021 were defined by a rotation to value. Do you think value still has some room to go in the next couple of months? Are you planning to add exposure to value stocks and if so, which funds are you using?
We do believe value has much further to go. Typically value does well in absolute and relative terms when long bond yields are rising and when yield curves are steepening, as we are seeing now. Historically, long-duration growth stocks have underperformed as rate pressures have risen, and this time the rate pressure is coming after growth stocks have had particularly strong rallies.
With value it is always important to pinpoint potential catalysts, otherwise value can become even deeper value. In the case of European and UK financials — as a current example of value — the important catalysts are the central banks and regulators encouraging the commercial banks to resume dividend payments.
Jeffrey Sacks
Location:
London
Firm:
Citi
Job:
Head of investment strategy for EMEA
The first months of 2021 were defined by a rotation to value. Do you think value still has some room to go in the next couple of months? Are you planning to add exposure to value stocks and if so, which funds are you using?
In our 2021 outlook, we recommended a tilt toward value investing following the tremendous outperformance of growth companies in the second half of 2020. We still see some upside potential in certain areas of the value space in the second half of the year, but this play will become more challenging if economic growth disappoints. In our recently published 2021 mid-year outlook, we now favour a more classic barbell strategy between the attractive pockets in the value space mentioned above and quality companies, particularly stocks that have pricing power in the current macroeconomic environment. We are implementing our value call with an overweight in Europe on a regional basis. We also see further potential in financials, with a particular focus on European banks. Much will depend on the long-term inflation expectations in the US in the second half of the year and how the Federal Reserve reacts to them. A possible early tapering by the Fed could be a game changer for value stocks, so we see flexibility as well as agility in the portfolio as an important contributor to success in the coming months.
Thomas Wille
Location:
Zurich
Firm:
LGT Private Banking
Job:
Head of research and strategy
How are you positioning your portfolios
for the uptick in inflation and interest rates? What does it mean for your allocations?
In the second half of the year, the US economy is set to grow at rates last seen in the late 1970s and early 1980s. Accordingly, the US bond market is building up a risk premium against inflation and earlier-than-expected policy tightening. However, we are not yet in a macroeconomic regime of monetary and fiscal fusion. Public statements from current officials show that they still consider tolerance of the public deficit as an emergency measure justifiable only by exceptional conditions, such as the current pandemic. Reflation is thus on the horizon, but we are not there yet and the journey will be bumpy. In the second quarter of 2021, if history is any indication, we expect the rise in Treasury yields and associated style rotation to at least pause.
The question is therefore how to steer the equity allocation, to focus on value and cyclicals, or rather growth? Our answer is to combine both, especially in this decade that will ultimately be marked by a sustained reflation of the US economy. We favour a style-neutral strategy combining innovative growth companies and beneficiaries of economic normalisation.
On the fixed income side, we are slightly short duration, with a small defensive position in US Treasuries. We remain constructive on quality credit and favour CNY-denominated Chinese government bonds.
Yves Bonzon
Location:
Zurich
Firm:
Julius Baer
Job:
CIO
Asset managers and owners are ramping up their commitments to 2050 net-zero targets ahead of the COP 26 this year but what are the biggest pitfalls on the way to these targets? Which investment strategies will help you achieve these goals and what do you require from your asset management partners in that regard?
The biggest pitfall for investors is failing to encourage the net-zero transition process by exclusively focusing on ESG purity in their portfolios, investing solely in wind farms or excluding oil companies, for example. This type of screening produces a narrow, backward-looking lens that rewards good past practices.
We need a different mindset in the face of the structural transition to a net-zero economy. As companies work to reach the goals set by the Paris Agreement, tremendous investment opportunities and sources of superior risk-adjusted returns are being created. How businesses adapt is critical to their profitability and outlook. Those business models that successfully align to a net-zero economy will see their competitive advantage grow.
We see massive potential in companies that are creating ambitious solutions to reduce their emissions. Our approach encourages investing in solution providers as well as essential sectors that may be highly polluting today, but which are decarbonising and accelerating their transition by developing new technologies and products. We are monitoring their emissions thanks to a proprietary investment framework and carbon expertise.
When it comes to externally managed strategies on our PrivilEdge platform, we constantly seek to strengthen their sustainability profile. This includes launches of new strategies, such as PrivilEdge – Atlas Impact, for example, as well as active dialogue with our partners to explain our investment philosophy, adapt the investment brief or enhance disclosures wherever needed.
Stéphane Monier
Location:
Geneva
Firm:
Lombard Odier Private Bank
Job:
CIO
Asset managers and owners are ramping up their commitments to 2050 net-zero targets ahead of the COP 26 this year but what are the biggest pitfalls on the way to these targets? Which investment strategies will help you achieve these goals and what do you require from your asset management partners in that regard?
In our manager selection we conduct a thorough analysis of each asset manager we work with, not only with regard to their investment competencies but also their sustainable investing framework. In order to qualify for a sustainable investment each strategy needs to fulfil a number of qualitative and quantitative criteria.
The climate approach is a key part of sustainable investing. Therefore we want to know from our partners if they have a climate pledge and if so how they implement it. Using our own climate tool we are also able to analyse the investment strategies of our asset management partners. This enables us to select market players aligned to a successful energy transition, and to discard those that present a climate risk.
Philipp Baertschi
Location:
Zurich
Firm:
J.Safra Sarasin
Job:
CIO
Asset managers and owners are ramping up their commitments to 2050 net-zero targets ahead of the COP 26 this year but what are the biggest pitfalls on the way to these targets? Which investment strategies will help you achieve these goals and what do you require from your asset management partners in that regard?
At Credit Suisse, we want to play a role in helping to ensure our clients’ portfolios are ‘climate transition ready’. Our clients increasingly recognise the importance of climate change, but many do not yet know how to go about integrating these considerations into their portfolios. Adding to the complexity, the methodologies are developing fast. For example, carbon footprinting was considered cutting-edge a few years ago, whereas investors can now analyse the climate preparedness of their portfolios and the degree to which they align with a 1.5°C global warming scenario.
However, decarbonising your portfolio is not the same as building a portfolio that helps to decarbonise the world. As well as ensuring their portfolios are aligned with a low-carbon future, investors also need to explore whether their portfolios are actually contributing to solving the climate challenge. We believe that investors have the greatest impact when they help fund the growth of impactful companies where that capital is additive or additional, as is often the case with innovative early-stage companies, or companies and projects in developing countries, where capital is scarce and expensive. Investors can also be highly impactful when they are active owners, and influence companies through shareholder engagement, joining boards, becoming trusted advisers to the company management, or by exercising shareholder voting rights.
Michael Strobaek
Location:
Zurich
Firm:
Credit Suisse
Job:
Global CIO
Asset managers and owners are ramping up their commitments to 2050 net-zero targets ahead of the COP 26 this year but what are the biggest pitfalls on the way to these targets? Which investment strategies will help you achieve these goals and what do you require from your asset management partners in that regard?
This is of course a very important target and we are a signatory of the Net Zero Asset Managers Initiative. The greatest pitfall for us and our partners in the initiative might still be the availability of data to track the progress. This is a challenge but a lot can be done with the data and analysis that we do today. Therefore, all managers in the initiative should still be able to make a difference and achieve our common goal.
To make healthy returns while promoting sustainable development, we start by making sure the fund we are interested in does not invest in areas we exclude, such as alcohol and fossil fuels. The asset manager must also have a sustainability framework that meets our standards. A commitment to net zero is important, but at this point in time we will not exclude managers who do not have such commitments. We strive for cooperation and try to nudge asset managers in the right direction. We will also increase our allocation to funds that align with our vision, and which have a focus on areas such as renewable energy, water and waste solutions, and green bonds.
Johann Guggi
Location:
Stockholm
Firm:
Handelsbanken
Job:
CIO asset allocation
Asset managers and owners are ramping up their commitments to 2050 net-zero targets ahead of the COP 26 this year but what are the biggest pitfalls on the way to these targets? Which investment strategies will help you achieve these goals and what do you require from your asset management partners in that regard?
Starting too late or relying on hypothetical technologies are the obvious pitfalls here. In its roadmap to net zero by 2050, the International Energy Agency calls for a ban on new coal-fired power stations and new oil and gas fields from 2021 onwards, but we know this first step won’t be achieved in 2021. Many roadmaps, especially those that assume a future for fossil fuels, also explicitly rely on ‘technologies not yet invented’ to meet the target. Using carbon capture and storage as an example, it’s estimated that it would take more than half of the total amount of energy produced globally to capture carbon at the scale required to reach net zero. It’s up to asset owners and voters to really push governments to have real policies and the first, most simple step is to move power away from fossil fuels and towards renewable energy as quickly as possible. From there, providing solutions to reach net zero is the biggest investment opportunity in our lifetime.
We need asset managers to explicitly measure and transparently report the scope 1, 2 and 3 emissions from their investments and to actively engage with the companies they own to drive positive change – this is now a critical factor in why we would select an investment strategy in any asset class.
David Storm
Location:
London
Firm:
RBC Wealth Management
Job:
CIO
Asset managers and owners are ramping up their commitments to 2050 net-zero targets ahead of the COP 26 this year but what are the biggest pitfalls on the way to these targets? Which investment strategies will help you achieve these goals and what do you require from your asset management partners in that regard?
Investors will be essential in driving the transition to net zero but providing concrete details on how decarbonisation can be achieved will be critical. Reaching this goal will also require significant changes from the companies within investment portfolios as well as broader economic shifts. Overall, these changes will require initiative and action from governments, the financial system, investors, and corporates – and the interdependency of all of these players and the coordination required among them, represent a significant risk to these targets.
We are seeking higher levels of transparency in approaching sustainability and metrics from our partners. Greater detail on portfolio emissions and engagement are clearly at the forefront here. Investment strategies that will be critical for achieving net-zero pledges include active engagement strategies, those focused on companies that have clear transition plans, and – importantly – investment in actual climate solutions that enable decarbonisation and industry transformation. Active engagement strategies are essential for achieving net zero as well as driving actual change toward climate targets. Strategies that focus on companies with clear transition plans provide investors with exposure to incremental positive change on climate issues. Those that actually deliver measurable positive change on decarbonisation, including carbon removal and other transformative technologies, are essential in order to enable companies to achieve their own targets and make a 1.5 degree scenario more realistic. These strategies closely align with our emphasis on impact investing, engagement for real impact, and focus on incremental positive change.
Mark Haefele
Location:
Zurich
Firm:
UBS Wealth Management
Job:
CIO
Mark Haefele
David Storm
Johann Guggi
Michael Strobaek
Philipp Baertschi
Stéphane Monier
It’s difficult to get yield from fixed income at the moment, so are you using any alternatives in this area, such as convertibles or catastrophe bonds? Which funds and investment instruments do you favour in this respect?
We continue to look for a yield pick-up in fixed income, as we think the inflation spike will be temporary, allowing the US Federal Reserve to taper very gradually. We see value across the credit spectrum, in investment grade and high yield, but especially in emerging market bonds, with a focus on Asia. Although China’s producer price index has risen, its consumer price index remains in check, so we do not foresee rate hikes in either 2021 or 2022. Given the significant yield uptick, and increased liquidity flowing into the market as benchmark indices include a growing weight in Chinese bonds, we think spreads will compress further in coming months.
Investors can also find yield through dividends, especially in the banking sector, as many banks have raised – or want to raise – their dividend payouts. Finally, structured product solutions can help clients gain yield, while providing a degree of protection.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
It’s difficult to get yield from fixed income at the moment, so are you using any alternatives in this area, such as convertibles or catastrophe bonds? Which funds and investment instruments do you favour in this respect?
Fixed income is indeed a difficult area to allocate to, particularly for euro-based investors like us. A large part of the fixed income world has a negative expected return and therefore we are invested mainly in the higher risk part of the fixed income universe. Within countries, this means an allocation to Italy, Spain and France, but mainly to investment grade corporates. Next to that, we allocate to global high yield and emerging markets, in both corporates and government bonds. We use funds where the manager has room to allocate between the different sub-asset classes and at the same time we are keeping a close eye on keeping transaction costs low.
Richard De Groot
Location:
Amsterdam
Firm:
ABN Amro
Job:
Global head investment centre
It’s difficult to get yield from fixed income at the moment, so are you using any alternatives in this area, such as convertibles or catastrophe bonds? Which funds and investment instruments do you favour in this respect?
To deal with the negative yielding environment our fixed income strategy incorporates a strong overweight to corporate bonds. US investment grade corporates give a decent yield, when hedged to the euro, of more than 1%. We balance risk and reward through an underweight allocation to global Treasuries – which incorporates an overweight to inflation-linked bonds – and a sizeable allocation to higher risk bonds. Based on a credit cycle which remains generally supportive for risk-on positioning, we favour emerging market debt (EMD), contingent convertible bonds (cocos), corporate hybrids, convertibles and high yield over investment grade government bonds. Our high risk allocation provides yield pick-up, lowers duration risk and adds diversification benefits. Within our high risk allocation we are mostly constructive on EMD, high yield and cocos, where spreads are tight with respect to historical valuations, but the risk of spread-widening is contained by solid fundamentals and the current global recovery. In the case of a risk-off scenario, global bonds offer more room for yield compression than our benchmark BB Barclays Euro Aggregate index, in which case the impact of spread-widening on the fixed income portfolio is partially offset.
Mary Pieterse-Bloem
Location:
Utrecht
Firm:
Rabobank
Job:
Head of investment office
Fixed income is a difficult allocation area to get yield from at the moment. What kind of alternative fixed income options are you using, be it convertible bonds or catastrophe bonds for example? Which funds/what kind of instruments do you favour?
An active approach is key when it comes to identifying opportunities and improving returns. Within fixed income, I see most value in emerging market government bonds and corporate credit. In the alternatives space, select insurance-linked securities (ILS) are attractive due to their low-to- uncorrelated return source relative to traditional asset classes. Such assets might generate a stable return too. I consider ILS as more of a portfolio diversifier than as a yield enhancer within the bond quota.
Dan Scott
Location:
Zurich
Firm:
Vontobel
Job:
CIO Wealth Management
It’s difficult to get yield from fixed income at the moment, so are you using any alternatives in this area, such as convertibles or catastrophe bonds? Which funds and investment instruments do you favour in this respect?
It’s certainly a demanding time for bond investors. Large parts of the government bond universe show negative yields. Inflation rates have moved higher since the start of the year, but the consensus is that these increases have been caused by special effects. The major central banks have confirmed their view about the transient nature of the inflation rises and that they would stick to supportive monetary policy. Bond market sentiment has calmed down, government bond yields stopped attempts to move upwards and shifted to a sideways trading pattern. Given the uncertainty about inflation developments in the coming months, risk/return characteristics on government bond markets seem unfavourable.
Investors looking for positive yields in current fixed income markets need to take some form of risk, be it credit or duration, and we use both factors. We are therefore underweight government bonds and overweight corporate investment grade bonds. In terms of duration we are staying below the benchmark in order to control interest rate risk in case of rising government bond yields and a steepening of the yield curve. Top tap higher yields we have an overweight in emerging markets hard currency bonds. EU non-financial hybrids offer incremental yield relative to senior unsecured debt and can be added to portfolios where this type of investment is permitted and fits into the risk profile. Convertibles also offer good convexity provided you understand the equity component and how this could affect volatility.
Christian Nolting
Location:
Frankfurt
Firm:
Deutsche Bank
Job:
Global CIO and head of CIO and investment solutions
It’s difficult to get yield from fixed income at the moment, so are you using any alternatives in this area, such as convertibles or catastrophe bonds? Which funds and investment instruments do you favour in this respect?
At the moment we like hybrid asset classes, including convertible bonds, preference shares (non-financials preferred), and AT1 contingent convertible bonds.
We also favour emerging market sovereign bonds and equity dividend funds oriented to dividend growth and low volatility. Finally, we recommend structured products or funds exposed to commodities’ roll yield.
Edmund Shing
Location:
Paris
Firm:
BNP Paribas Wealth Management
Job:
CIO
It’s difficult to get yield from fixed income at the moment, so are you using any alternatives in this area, such as convertibles or catastrophe bonds? Which funds and investment instruments do you favour in this respect?
Alternative funds have been struggling for a while now in an environment with few sustained trends and low interest rates. We started to reduce our exposure to alternative strategies in 2017, lowering the total expense ratio and getting more control on the portfolio construction. Our strategy paid off as we have consistently outperformed since then. As valuations in traditional assets become stretched, particularly in the traditional bond market, we have been adding exposure to catastrophe bonds and convertibles. The former give us exposure to fixed income assets that are uncorrelated to the rest of our portfolio; the latter allow us to invest in an area that is more interesting than traditional bonds in a world where economic recovery continues but at a more moderate pace. We are also exploring blockchain technologies and cryptocurrencies but are not yet ready to invest. The volatility is too high, we still have many questions on their ability to store value, and their environmental impact is questionable as the mining of such currencies consumes too much energy. Tokenisation, where assets are represented as a digital token, can provide liquidity and access to otherwise inaccessible strategies for many traditional investors, and we are looking into this area.
Carlos Mejia
Location:
Zurich, Geneva
Firm:
Rothschild & Co
Job:
CIO
Carlos Mejia
Christian Nolting
Dan Scott
Edmund Shing
Mary Pieterse-Bloem
Richard De Groot
Willem Sells
One of the alternative areas that investors have been eyeing this year is special purpose acquisition companies (Spacs). Do you have any exposure to the segment and if not, what kind of alternative assets or investment funds are you using to diversify your portfolios?
We do not invest in Spacs at the moment. To diversify alpha sources in our portfolios, we continue to use and promote private assets, such as private equity, private debt and infrastructure, as well as hedge funds, notably Ucits approaches. The current investment environment supports our strategy, with elevated asset valuations, low bond yields and a strong correlation between equities and bonds. We prefer investing in well-established private equity firms rather than participating in the Spac trend.
Vincent Manuel
Locations:
Paris
Firm:
CA Indosuez
Job:
CIO
One of the alternative areas that investors have been eyeing this year is special purpose acquisition companies (Spacs). Do you have any exposure to the segment and if not, what kind of alternative assets or investment funds are you using to diversify your portfolios?
We have no exposure to Spacs at the moment. As an alternative to IPOs, Spacs carry a number of benefits for the private companies seeking a listing and for their sponsors but under current market conditions, they offer comparatively fewer benefits for shareholders.
Spacs carry the promise of, effectively, sponsor-related alpha, via a sponsor’s ability to identify and secure an attractively priced target. Unfortunately, the benefits of much of this alpha often get eaten up by the way these transactions are structured.
For active and, we expect, more persistent alpha, we prefer hedge fund strategies which we believe can offer portfolio construction benefits in the market environment we expect to emerge in the second half of the year. Indeed, as the global economy transitions out of the recovery phase, it’s worth looking back over the past 30 years. Over this timeframe, investors have seen periods of more modest, though admittedly still positive returns, but these have often been characterised by deeper and more frequent bouts of drawdowns.
This creates an opportunity for reliable alpha-oriented strategies to add value to portfolios relative to the beta-focused strategies over the past year.
Norman Villamin
Locations:
Zurich
Firm:
UBP
Job:
CIO
One of the alternative areas that investors have been eyeing this year is special purpose acquisition companies (Spacs). Do you have any exposure to the segment and if not, what kind of alternative assets or investment funds are you using to diversify your portfolios?
We have a positive view of Spacs and are going to distribute this vehicle within the next few months in response to client demand, especially for Italian assets.
Manuela D’Onofrio
Location:
Milan
Firm:
UniCredit
Job:
Head of group investments and solutions
One of the alternative areas that investors have been eyeing this year is special purpose acquisition companies (Spacs). Do you have any exposure to the segment and if not, what kind of alternative assets or investment funds are you using to diversify your portfolios?
We have exposure to alternatives through our hedge funds allocation. The attractions of Spacs to sponsors and companies seeking public listing are obvious but from an investor standpoint there are numerous problematic factors to overcome. Spacs’ performance in absolute terms within a bull market has been adequate, but they lag both the broader market and a basket of traditional IPOs. We have concerns about the clear misalignment of interests and risk/reward that favours sponsors and arbitragers over buy and hold investors. What’s more, the huge incentive for sponsors to complete Spac listings creates the risk that certain target companies will fall short in terms of quality, so stringent due diligence is required. Frenzied activity and relatively light restrictions on optimistic statements concerning company prospects demands investor vigilance. Spacs are here to stay, but their appeal could diminish in the event of poor performance, particularly by unproven, pre-revenue companies, and we expect the Spac process to be subject to more intense regulatory attention.
Given the positive correlation between bonds and stocks, hedge funds continue to play an important role in our tactical positioning as a portfolio diversifier.
Cesar Perez Ruiz
Location:
Geneva
Firm:
Pictet
Job:
CIO
One of the alternative areas that investors have been eyeing this year is special purpose acquisition companies (Spacs). Do you have any exposure to the segment and if not, what kind of alternative assets or investment funds are you using to diversify your portfolios?
Spacs have been up and running for years in the US, but in Sweden the regulator accepted the asset class as of February this year, so we have adopted them relatively recently. SEB launched the first Swedish Spac in March and we ran a second IPO just before the summer and in both cases SEB acted as the sole global coordinator. We have presented these two Spacs to our private banking customers within our advisory service. A couple of other Spacs have also hit the market this year and I am certain that more will enter the marketplace in the coming years since Swedes are used to investing in equities and in strong investment professionals and management teams. As an example, a couple of the existing Swedish Spacs have been launched by highly trusted industrial holding companies.
We mainly use liquid alternatives in our discretionary allocation mandates. These are dominated by hedge funds and from time to time complemented with commodities and unhedged fixed income i.e., fixed income and foreign exchange combined. We have quite a lot of equity exposure over time and the collapse in yields has shifted our fixed income portfolios towards a higher degree of corporate bonds, so we use the alternative portfolio as a risk broadener with quite low market risk.
In our advisory service, where we can implement and offer less liquid solutions, we also use private equity, microfinance, forest, infrastructure and private debt.
Fredrik Öberg
Location:
Stockholm
Firm:
SEB Private Banking
Job:
CIO, investment strategy
Alternative funds struggled to deliver returns last year. Do you still use strategies in the space and if so, what kind do you use and what you are looking to add? If you don’t, are you exposed to other alternatives instead, be it bitcoin or real assets?
Alternative Ucits funds structurally account for around 10% of our discretionary mandates, for which we use a variety of strategies ranging from absolute return equity long/shorts to multi-factor strategies.
Our long short strategies in particular have delivered positive results.
Outside traditional mandates, we are proposing hedge fund mandates to our clients with a broader variety of strategies including global macro, event driven or credit. Hedge fund mandates offer the possibility to monetise the illiquidity premium which can be found in offshore funds - such as relative value, special situations, and emerging markets - while limiting the overall drawdown through diversification and less correlated strategies.
In this market environment with increasing M&A activity, we are raising exposure to more event driven strategies even in our traditional mandates and advisory activities.
Vincent Manuel
Location:
Paris
Firm:
CA Indosuez
Job:
CIO
Fredrik Öberg
Cesar Perez Ruiz
Manuela D’Onofrio
Norman Villamin
Vincent Manuel
inflation positioning
climate solutions
Em horizons
alternatives
How are you positioning your portfolios for the uptick in inflation and interest rates? What does it mean for your allocations?
Overall we have a risk-on bias in the portfolios, with an overweight in equity, and a tilt to cyclical exposures. Within our government bond allocation we have exposure to inflation linkers. We prefer equities, based on the recovery later in the year, the continuing accommodative monetary policy and the solid equity risk premium given the negative/low interest rate environment. Also, equities can withstand a further uptick of inflation and higher interest rates. Higher rates in the US are no deal breaker for the bull market in equities if rates rise gradually over the coming quarters. If rates rise too fast and pose a risk for the recovery, central banks are likely to implement further measures. Our allocations as a whole could therefore outperform our benchmarks in a scenario with an uptick in inflation and higher interest rates.
Taoufik Boussebaa
Location:
Utrecht
Firm:
Rabobank
Job:
Head of strategy and communication
Bob Homan
It’s difficult to get yield from fixed income at the moment, so are you using any alternatives in this area, such as convertibles or catastrophe bonds? Which funds and investment instruments do you favour in this respect?
Fixed income is indeed a difficult asset class at the moment and we expect negative returns, especially in the short term. We are trying to address this in several ways. First, by underweighting government bonds and maintaining a relatively low duration. Second, by adding some spread risk with corporate bonds, high yield and emerging market debt. But that’s probably not enough for a positive return this year, so we have also added inflation-linked bonds and asset-backed securities to our portfolios. These asset-backed securities do have floating rates in many cases, so an uptick in rates won’t hurt the performance, on the contrary.
Regarding inflation-linked bonds, we invest in the Axa World Funds - Global Inflation Bonds fund, and for asset-backed securities we favour the Morgan Stanley Global Asset Backed Securities and NN European ABS funds.
Bob Homan
Location:
Amsterdam
Firm:
ING
Job:
Head of investment office
thomas wille
Location:
Zurich
Firm:
LGT Private Banking
Job:
Head of research and strategy
How are you positioning your portfolios
for the uptick in inflation and interest rates? What does it mean for your allocations?
At the beginning of the year we thought we would see upward pressure on inflation expectations and thus on the long end of the yield curve, especially for US government bonds. The main driver for this scenario is better economic growth not only in Asia but also in the US and therefore globally. This was also the main reason why we started to reduce government bonds with an underweight in January and advised our clients to be short in duration on the fixed income side. With the additional US fiscal package of $1.9tn in Q1/2021 and the announced infrastructure package by the Biden administration of around $2.25tn, the pressure at the long end is likely to continue.
On the equity side, we continue to pursue a barbell strategy. On the one hand, we remain invested in cyclical sectors such as banks that benefit from a steep yield curve. On the other hand, we are invested in companies that benefit from secular trends such as digitalisation and have the pricing power to pass on a short-term price increase to their customers. As long as the rise in inflation expectations is only in the short term and not in the medium to long term, the headwind for equities should be limited. Over the course of Q1, we have been overweight commodities, specifically base metals, as they should benefit from a potential overshoot in the global economy. As a contrarian anchor, we remain positive on gold in the medium term. Gold is a good diversification against a rapid increase in equity market volatility, and should also serve as a good insurance against the biggest monetary policy experiment of modern times.
In Association with
Anja Hochberg
It’s difficult to get yield from fixed income at the moment, so are you using any alternatives in this area, such as convertibles or catastrophe bonds? Which funds and investment instruments do you favour in this respect?
Fixed income – albeit with lower quotas than in the past – still constitutes an important diversifying pillar of a portfolio and this effect still holds true, especially for CHF-based clients. Against the backdrop of low yields, the fact that you can profit from yield roll-down sometimes gets forgotten. In addition to diversifying via government bonds, which have slightly increased in attractiveness given the yield increase 2021, we have enhanced our portfolio by using high yield bonds or adding emerging market exposure. This fixed income barbell strategy provides protection via government bonds on the one hand, while high yield bonds on the other side profit from the cyclical economic upswing. As with all fixed income sub-asset classes, spreads to government bonds have come down significantly. Nevertheless, they still provide a yield pick-up which also helps to cushion your portfolio in case of an increasing general yield level. Emerging markets bonds, where tapering or increasing yields is not broadly on the agenda, also enhance the yield in a portfolio. We prefer to implement this opportunistically with local and hard currency bonds and currently with a special preference for Chinese bonds. We have also implemented our reflation investment theme using inflation-protected bonds, which we have sold in the meantime as inflation has peaked. Within the alternative part of our multi-asset portfolios, we use insurance linked bonds. They are hardly linked to business cycle dynamics and provide an interesting yield boost. Other elements we consider on a tactical basis are convertible bonds and contingent convertible bonds.
Anja Hochberg
Location:
Zurich
Firm:
ZKB
Job:
Head of multi-asset solutions
Renato Zaffuto
One of the alternative areas that investors have been eyeing this year is special purpose acquisition companies (Spacs). Do you have any exposure to the segment and if not, what kind of alternative assets or investment funds are you using to diversify your portfolios?
We have been watching the increasing inflows and interest in Spacs but we have no significant exposure here because we prefer other types of alternatives strategies. As wealth allocators, tapping into Spacs would mean investing in bond market instruments initially, until the Spac’s management found an equity opportunity via IPO. Under this framework we would not be in a position to manage and control our specific desired risk allocation at the start, and wouldn’t have much insight into the industry we were gaining exposure to.
However, we have a strong commitment to private markets as there are a range of investment strategies in this area. We expect a gradual normalisation path for interest rates, so we are looking at switching a part of our traditional fixed income exposure to some search-for-yield strategies in private debt and infrastructure. In these areas we like to have a firm control over what we select, and are moving more and more towards sustainable business models, for example.
Renato Zaffuto
Location:
London
Firm:
Fideuram
Job:
CIO
Thomas Wille
Fahad Kamal
Daniel Murray
The first months of 2021 were defined by a rotation to value. Do you think value still has some room to go in the next couple of months? Are you planning to add exposure to value stocks and if so, which funds are you using?
The environment continues to favour equities in general and we remain overweight. We continue to recommend a balanced mix between growth and value and look for companies that have good pricing power to pass on the increase in input prices to consumers in order to preserve margins. We believe there is still upside within some key value segments, such as banks, against a backdrop of cyclicality and a steeper yield curve.
*Please note that Kleinwort Hambros and Societe Generale Private Bank may not always align on allocation calls
Fahad Kamal
Location:
London
Firm:
Kleinwort Hambros (SocGen group)*
Job:
CIO
The first months of 2021 were defined by a rotation to value. Do you think value still has some room to go in the next couple of months? Are you planning to add exposure to value stocks and if so, which funds are you using?
Over the past year growth and value stocks have performed broadly in line with each other although the timing of returns has been quite different. Whereas growth stocks outperformed value in Q3 and early Q4 2020, value has outperformed growth for much of the year to date. An important catalyst for this shift in relative returns has been the rapid roll out of vaccination programmes around the world. In turn that has been associated with an improved economic outlook as governments have felt more confident in relaxing Covid-related restrictions. In that context it is no surprise that cyclically sensitive stocks within the value bucket have performed particularly well. Energy, financials and industrials have all risen strongly so far this year as a strong rebound in global demand has increased commodity price pressures, steepened the yield curve and renewed confidence in investment projects.
As we enter the second half of the year global growth appears to be peaking. Economies around the world are expected to continue to grow relatively quickly but the rate of expansion is likely to slow as activity returns to, or exceeds, pre-crisis levels. While the environment remains generally supportive of equities and other risk assets, given expected ongoing policy support and improving macro conditions, we expect value stocks to remain favoured over the next few months. This is because of the reduced global growth momentum and the still large outperformance of growth over value stocks over the past few years.
Daniel Murray
Location:
London
Firm:
EFG Asset Management
Job:
Deputy CIO and global head of research
Søren Funch Adamsen
Asset managers and owners are ramping up their commitments to 2050 net-zero targets ahead of the COP 26 this year but what are the biggest pitfalls on the way to these targets? Which investment strategies will help you achieve these goals and what do you require from your asset management partners in that regard?
We are very focused on the climate transition and have joined the Net Zero Asset Managers initiative. Perhaps the greatest pitfall of the climate agenda is that other very important issues around sustainability are neglected. In addition to the climate, and more broadly the environment, we believe that our social responsibility is equally important.
To ensure a broad ESG-agenda, we focus on all three letters in the acronym in our sustainable investment philosophy. Specifically, we have implemented holistic ESG-indicators to monitor, manage and ensure strong ESG properties across our portfolios. We have also started looking into modelling ESG dynamics in our asset allocation process. We do not invest in certain companies that are not aligned with our sustainability requirements and we engage in active ownership with others to promote sustainable behaviour. Finally, when engaging with our partners and other stakeholders we are vigilant about their approach to sustainability. We will generally refrain from collaborating with partners that do not share our commitment to the ESG agenda.
Søren Funch Adamsen
Location:
Copenhagen
Firm:
Danske Bank
Job:
Head of portfolio construction
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Yves Bonzon
The first months of 2021 were defined by a rotation to value. Do you think value still has some room to go in the next couple of months? Are you planning to add exposure to value stocks and if so, which funds are you using?
Looking at the opportunities in major markets, nothing strikes us as blatantly mispriced, especially on a relative basis. Low-risk instruments, cash, and G7 government bonds are distorted by financial repression and this is unlikely to change anytime soon. Credit spreads have tightened to, or close to, pre-Covid-19 levels and this is consistent with a strong growth environment, in particular in the developed world. We expect a further wave of rating upgrades and low default rates supporting the asset class. Within equities, the intra-sector valuation spreads have narrowed to half a standard deviation above the mean in the US. This leaves some room for further compression towards the below-historical mean in a strong growth scenario, but the easy money from the value factor has already been harvested. In some sectors, such as industrial metals, further outperformance would require a new commodities super-cycle, which we struggle to envisage. Overall, market pricing is typical of an economy that is at an advanced stage of the cycle rather than just exiting a recession. This makes sense, as the recession was caused by an external shock and the economy is reopening rather than recovering.
Yves Bonzon
Location:
Zurich
Firm:
Julius Baer
Job:
CIO
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30
01
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02
Our biggest asset allocation change over the last three months has been an overweight to developed market equities, relative to US high yield bonds. The upside potential for equities is higher since they stand to benefit more from a recovery in corporate earnings, led by a vaccine-driven economic reopening. This is a factor that arguably matters less for high yield spreads.
We remain underweight in US high yield bonds, given how expensive valuations have become. In our opinion, while the economic and policy backdrop remains positive, current valuations mean the asymmetry in US high yield bond returns is still unfavourable.
Barclays Wealth Management
03
Jean-Paul Jaegers
Over the past three months, we have maintained our overweight in equities, although we have moved our exposure to high yield credit down to neutral from overweight. We think spread compression has been impressive and we prefer to be in a neutral position, even with the tailwinds, in order to have some room in the future to overweight if there is a price correction.
We are convinced that despite the slight hawkish surprise from the last US Federal Reserve meeting, central banks will continue to maintain their monetary stimulus for longer than the market consensus expects. This implies tailwinds for equities and greater stability in debt interest rates. Nonetheless, we maintain an underweight in government bonds, as we think their yields will increase further.
Enrique Marazuela
BBVA
We went further overweight equities at the expense of bonds in the last quarter. This was distributed evenly over regions. In our sector allocation, we are maintaining a cyclical stance.
Our main contrarian call is an underweight position on energy within equities.
Richard De Groot
ABN Amro
ABN Amro
Barclays Investment Solutions
BBVA
BNP Paribas WM
CA Indosuez
Citi
Commerzbank
Credit Suisse
Danske Bank
Deutsche Bank
Edmond de Rothschild
Fideuram
Handelsbanken
HSBC PB
ING
J.Safra Sarasin
Julius Baer
LGT
Lombard Odier
Natixis WM
Pictet
Rabobank
Rothschild & Co.
Santander PB
SEB PB
SocGen
UBP
UBS
UniCredit
Vontobel WM
04
Our biggest asset allocation change over the last three months has been within euro investment grade credit where we moved from neutral to positive.
Our biggest convictions are long emerging market equities in Russia and Brazil and long precious metals exposure in commodities and equities. We are also long healthcare in equities.
Edmund Shing
BNP Paribas Wealth Management
05
We are continuing to gradually reallocate our exposure towards value sectors in the US and in Europe because both top-down conditions (macro acceleration, reflation, upcoming monetary normalisation) and bottom-up conditions (strong earnings surprises in value sectors) are currently strong.
All indicators, such as earnings revisions, corporate guidance momentum, technical analysis and bull/bear indices, are supportive of equities but we think it is time to start reducing equity exposure after a great rebound, and return to more neutrality. That said, we have kept our long-term overweight on Chinese equities.
Vincent Manuel
CA Indosuez
29
We took an overweight position in commodities at the beginning of the year as we expected them to benefit from the cyclical reopening of the economy and, more importantly, from China’s massive credit impulse. The latter is clearly one of the most important drivers of commodity prices, but has recently started to wane. This, paired with the fact that many commodities recently reached all-time highs, makes them more vulnerable to short-term setbacks. We therefore decided to lock in profits and reduced our exposure to neutral in June.
I believe the rotation trade into value is over and growth will outperform by year end on a year-to-date basis. We maintain a structural growth bias within our equity allocation.
Dan Scott
Vontobel
06
Within the global equity allocation, we switched from outperforming US small and mid-caps into healthcare earlier in the year. One of our themes for this year is ‘reversion to the mean’, and this switch was within that context.
Our biggest conviction remains an underweight in developed market sovereign bonds. Despite ongoing central bank buying, valuations look very expensive.
We took a contrarian stance late last year by going overweight UK equities and added to the overweighting in March, making it our largest developed market overweighting.
Jeffrey Sacks
Citi
07
Commodities have continued their exceptionally strong performance of late. The broader macro backdrop is set to remain supportive, but we think that peak tightness may be near tactically, potentially heralding a phase of cooler returns. Against this, our global investment committee decided at its June meeting to realise gains on its overweight Bloomberg Commodity index allocation.
Elsewhere, despite the reflationary backdrop, real bond yields remain extremely low, indicating very rich valuations. The Credit Suisse investment committee therefore maintains the view that government bonds are unattractive, with yields expected to move higher over the course of the year.
Michael Strobaek
Credit Suisse
08
We entered 2021 with a significant underweight to developed government bond duration. After the sell-off in Q1, based on a belief that the reflation narrative was overshooting, we removed the duration underweight in our portfolios. These have been our biggest asset allocation changes and have contributed significantly to outperformance year to date.
Our most significant underweight is credit, particularly high yield, while our biggest overweight is to volatility. A crash in risk assets is not the most likely scenario, but current levels are so attractive that there is a strong case for paying a small premium for the protection. Our second high conviction is alternatives where we see interesting opportunities across liquid and illiquid assets.
Søren Funch Adamsen
Danske Bank
09
As major equity markets moved from record high to record high, we have taken profits and reduced our equity overweight in some measured steps. We took a slightly more defensive stance on equities in the last three months as well, but continue to follow our barbell approach combining structural winners with cyclical beneficiaries.
Despite a tough environment for government bond markets we realise they always offer a strong diversification effect. In fixed income, our biggest underweight is in government bonds. We still have an overweight in risk assets, although we have tactically reduced risk recently.
Commodities are a specific position in our portfolios and we switched from an overweight in gold to an overweight in broad commodities, which has delivered excellent returns.
Christian Nolting
Deutsche Bank
10
Over the last quarter we have increased allocation to European stocks from underweight to neutral and have slightly reduced our growth bias within US stocks by increasing allocation to an S&P equally weighted ETF.
More importantly, we have increased our portfolio allocation to megatrends such as digital healthcare, future of farming and family business.
We have maintained our allocation to Chinese stocks and have no exposure to developed market plain vanilla sovereign bonds. One of our biggest convictions is Chinese local currency government bonds.
Lars Kalbreier
Edmond de Rothschild
11
Our biggest contrarian call has probably been an increase in duration recently, reflecting the view that the market and positioning got ahead of itself with regard to shorting bonds. Within alternatives we continue to like convertibles. When it comes to equities we are allocating more to ESG and climate related themes - such as industrial commodities important in the manufacture of electric vehicles, batteries and electricity generation - while still pursuing longer-term growth opportunities in the tech sector.
Daniel Murray
EFG Asset Management
12
We have started to reduce our significant overweight in equities preferring a tilt in value and cyclical players in Europe and Japan, as well as in financials. We have maintained our strong underweight in government bonds, and have increased our underweight in US Treasuries. We have also started to reduce our overweight in commodities, taking profits.
Our biggest calls include a strategic increase of exposure to Chinese assets, both bonds and equities. We are also raising our exposure to some secular trends such as: digital technology-driven changes, new mobility, smart cities, energy transition, new consumption in emerging markets, real assets, and agriculture. As a contrarian call we have exposure to Japanese equities.
Renato Zaffuto
Fideuram
13
During the last quarter we have not made any significant changes to our allocation, but have increased our equity exposure versus fixed income slightly. We also reduced our exposure to US equities and increased our position in European equities.
Johann Guggi
Handelsbanken
14
We are continuing with a risk-on and cyclical stance, as well as a search for yield, as we believe the combination of growth and low rates favours equities, emerging market assets and credit. However, we noted the degree of Treasury market volatility, and further increased our emphasis on strategies that can help reduce the impact on portfolios. We are overweight financials, materials and industrials, for example, and have been suggesting that portfolios with a big overweight in technology should diversify. We also believe hedge funds have a rich opportunity set and are important diversifiers.
Elsewhere, we think the sell-off in the Chinese equity market is overdone and if investors want to avoid manufacturing, there are plenty of opportunities in the Chinese consumer-related themes.
Willem Sels
HSBC Private Banking
15
Our biggest allocation changes in the last quarter were within equities, where we upgraded Europe to an overweight and downgraded the US to an underweight. We were pretty active in sectors as well. We upgraded financials, materials and energy and downgraded utilities, communication services and IT.
Our biggest conviction is rising interest rates. We have expressed this view on the equity as well as the bond side. In bonds, through a shorter duration than the benchmark, added credit risk and specialities like asset-backed securities and inflation linkers. In equities, we have overweighted value stocks against growth stocks. This year, value has outperformed growth by 9% so far and we expect this to run on further.
Bob Homan
ING
16
Our biggest change in Q2 was to increase our allocation to emerging market (EM) equities and take profits in developed market equities, where we moved from an overweight to a neutral position. We have also cut our exposure to EM government bonds as we see an unfavourable risk reward profile.
Our overweight call on EMs is both high conviction and contrarian. We see early indicators of a trough in the Chinese credit cycle and expect a reacceleration in growth in coming quarters. This should be very supportive for EM equities. We continue to like high yield and financial bonds as the economic cycle is moving from early to mid-cycle characteristics.
Philipp Baertschi
J.Safra Sarasin
17
Real estate investment trusts (Reits) have performed very well this year despite upward pressure in government bond yields, so we took partial profits on our Western Reits exposure and reinvested the proceeds in high-yield bonds and US Treasury bonds. We are sticking with our allocation to Asian Reits as the prospects for commercial real estate there are stronger in the medium term.
Even as they continue to underperform this year, we remain invested in Chinese equities for two reasons: they remain a strategic asset class and will rise to core status within the decade; and provide diversification benefits in a world where the US and China will decouple. Nevertheless, we continue to monitor political developments in China as they remain a source of uncertainty and could make the asset class less attractive in the future.
Yves Bonzon
Julius Baer
19
We have continued to increase our overweight in European equities, guided by careful selection and are starting to find China attractive again. With the narrowing of credit spreads in the investment grade space we are continuing to reduce exposure there. In addition, during the second quarter we realised temporary gains in gold. In bonds, we prefer hybrid bonds over investment grade. In alternatives we like gold, hedge funds and private market investments.
Thomas Wille
LGT Private Banking
20
We have further shifted our equity allocations to benefit from the rotation from growth to value stocks, favouring small capitalisations, UK, European and global value equities. In bonds, we have strengthened our exposure to Chinese government debt in renminbi.
We expect the reflation trade to continue in the coming months, and maintain our pro-risk stance. Some of our biggest convictions are our strong preference for Chinese debt mentioned above, our overweight in pan-European stocks, and in alternatives, our overweight allocation to real estate while underweighting gold.
Stéphane Monier
Lombard Odier Private Bank
21
In April, we moved from neutral to underweight on emerging market sovereigns in local currency as US yields have impacted the relative attractiveness of these assets. We have a tactical overweight position on Chinese government bonds in view of the strong policy support they benefit from, the attractive yield pick-up and favourable risk-return metrics.
We have switched our stance on high yield, moving from an underweight in USD high yield to neutral, and from neutral to underweight in euro high yield.
Meanwhile, we have moved from neutral to underweight on US equities and have upgraded our positions on Swiss equities to neutral from underweight.
Cesar Perez Ruiz
Pictet
22
In the last three months we added convertibles and corporate hybrids to our fixed income portfolio. Both asset classes offer further diversification and yield pick-up. Within equities we added thematic equity exposures to four sustainability themes: circular economy, future of mobility (electrification), sustainable energy and healthy living. These themes offer potential for long-term excess returns.
Our biggest contrarian position is a slight overweight to Japanese equities. The asset class is underperforming year to date because of its lagging vaccination strategy and stealth tightening by the Bank of Japan. But the vaccination pace is improving, earnings are solid, corporate governance reforms provide tailwinds, merger and acquisition activity and shareholder activity is rising and valuations are compelling.
Mary Pieterse-Bloem
Rabobank
23
Within fixed income, we have had a significant risk allocation to US Treasury inflation-protected securities since April 2020 and we recently reduced this by around 75% as we took the view that inflation expectations were richly priced and the trade crowded.
Within equities, we’ve been increasing our exposure to Europe and particularly like infrastructure as a way to add more stable, defensive equities and reduce duration in our overall portfolio.
In alternatives, we’ve added exposure to carbon futures as we believe carbon pricing through cap and trade will play a key role in the path to net zero.
Sector-wise, financials remains our highest conviction call.
David Storm
RBC Wealth Management
24
Over the past three months our asset allocation has remained relatively unchanged. Our biggest change came in Q1, when we reduced our exposure to high quality, growth, large caps in favour of more cyclical exposure, predominantly in materials and industrials. In the last quarter we reduced our exposure to Asian emerging markets in favour of European companies that had been lagging the recovery.
Our biggest conviction remains our preference for equities over bonds. We still have a modestly optimistic view on the normalisation of the world economy post Covid-19. Consumer demand and services should remain resilient. On the other hand, the prospect of higher inflation does not favour already expensive bonds. We don't believe that it is yet time to make bold contrarian calls.
Carlos Mejia
Rothschild & Co
25
We have maintained a barbell strategy over the last quarter with a focus on global small-cap value combined with an overweight position in larger growth companies. Swedish equity is an important asset class for us and we have scaled back parts of our overweight positions towards cyclical and value companies. We have kept an overweight position in high yield and short duration. We made no big changes in our alternatives sub-portfolio.
Generally, we still favour an overweight stance towards risk and are overweight both equities and high yield bonds, but we are prepared for further sector and style rotation, as well as adjusting our total risk downwards if necessary.
Fredrik Öberg
SEB Private Banking
18
The case for equities over other classes remains unequivocal. However, we are cognisant of high absolute valuations and sharp potential drawdowns, and remain keenly aware of the need to balance risk. But in a world of ultra-low bond yields, we have to think outside the box for protection. One solution includes an increased allocation to defensive, low-correlation-to-equity alternatives such as merger arbitrage hedge funds.
Gold has had a volatile ride so far this year but we have an overweight position given gold shines brightest when you need it most, i.e. when risk assets sell off markedly.
*Please note that Kleinwort Hambros and Société Générale Private Bank may not always align on allocation calls
Fahad Kamal
Kleinwort Hambros (SocGen group)*
26
In equities, we have begun increasing our exposure to high quality earnings growth in anticipation of the peak in earnings growth momentum in the upcoming 2021 reporting season. Within bonds, we have similarly begun a quality pivot, reducing select credit risk exposure in anticipation of the spread widening that typically emerges in the coming stage of the economic cycle.
Looking ahead, we have shifted our focus more towards proactive risk management ahead of what we expect to be rising volatility, rather than the falling levels experienced since March 2020.
Norman Villamin
UBP
27
We are overweight MSCI World Energy vs cash. The sector is expected to be one of the biggest beneficiaries of higher inflation and economies reopening.
We have a positive outlook on oil and on global energy stocks. Price support for oil should come from a further decline in global oil inventories as oil demand continues to grind higher, benefiting from the removal of mobility restrictions amid the accelerating global vaccine rollout.
We also have a positive outlook on Japanese equities. Japanese stocks have underperformed global equities since the beginning of the year but we expect Japan to catch up with global peers.
Mark Haefele
UBS Wealth Management
28
In the last quarter, higher global growth and rising inflation led us to reduce our positioning on global bonds to underweight from neutral. Further rises in long-term US Treasuries yields look likely so we are focused on the duration risk.
As the global recovery continues we are sticking to our overweight on equities and commodities. We expect European equities to be underpinned by improving earnings growth and macroeconomic indicators. The first payouts from the Next Generation EU programme should also benefit the region’s green economy so we are increasing our positions in ESG thematic equities.
Elsewhere we are selectively increasing inflation-linked bonds.
Manuela D’Onofrio
UniCredit
30
Over the last few months, we have reduced our equity overweight but remain constructive given business cycle dynamics and fiscal policy support. Valuations have become more stretched, but positioning does not seem to be extreme anymore. Monetary policy, albeit still supportive, will be less of a driver. In fixed income, based on the significant yield increase, we have reduced our underweight and short duration stance. We are also sticking to a constructive commodity outlook but have taken profits from our overweight positions and await a renewed entry opportunity. Overall, we have significantly reduced our reflation trade call for now and sold small caps, convertible bonds, inflation-linked bonds and commodities.
Anja Hochberg
ZKB
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