Independent asset managers in the Swiss are realigning their portfolios to protect against political risk and the threat of an intensified trade war.
Independent asset managers in Switzerland consider the trade war between the US and China (43 percent of respondents) and the difficult political situation in Europe (24 percent) to be the two biggest risks on the stock market (see chart below).
Due to the recent share price losses last week, many companies are realigning their portfolios. This is according to the latest Aquila Asset Managers Index (AVI), which the Swiss Aquila Group publishes every three months in cooperation with finews.ch (Link to the article). The index summarizes various forecasts from independent asset managers in Switzerland. Almost 150 firms took part in the latest survey.
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The new caution is reflected, among other things, in the fact that many asset managers have reduced their holdings in traditional equities and bonds in favor of alternative investments, gold, other precious metals and increased liquidity (see chart below).
Specifically, asset managers reduced their bond allocation from 34.3 percent in the previous quarter to 29.0 percent; the proportion of equities fell from 44.3 percent to 42.0 percent. In contrast, liquidity increased from 12.0 percent in the previous quarter to 13.5 percent; the share of gold and other precious metals rose from 4.4 percent to 5.2 percent and that of alternative investments from 5 percent to 10 percent.
"The attractiveness of dollar bonds has risen sharply following the rate hikes and spread widening in emerging market bonds. Further interest rate hikes in the dollar bond market can be absorbed without major price losses from coupon income. In contrast, this is not the case in the euro and Swiss franc bond markets, and any tightening of European monetary policy will lead to sharp price losses. We therefore recommend investing the bond quota of the franc and euro mandates in dollar bonds with currency hedging," said Patrik Kaufmann, fund manager at Solitaire Aquila.
It is also interesting to note that the proportion of Swiss securities remained unchanged in the lower equity allocation (see chart below), while the respondents clearly reduced their holdings in European and Asian securities as well as in emerging markets. Only in US equities did the independent asset managers increase their exposure minimally. However, there could still be a correction here if the financial markets tumble further.
With regard to their own company, the asset managers surveyed were even more confident than three months ago. At that time, 38 percent of the survey participants were positive about the development of business; at the end of September, this figure had risen to 43 percent (see chart below). By contrast, there has been no change in their outlook: As three months ago, 43 percent of respondents rate the future as stable and 35 percent as positive.
A good quarter (26 percent) of the asset managers surveyed also want to hire more staff in the next twelve months (see chart below). This is no coincidence. After all, many of them have apparently been able to manage significantly more money in the past six months - on the one hand through new money inflows and on the other thanks to market performance.
"Syndicated bank loans" (bank loans) are currently enjoying strong demand and correspondingly high cash inflows, as these securities benefit from rising interest rates thanks to their "floating rates" characteristic. This has led to a sharp narrowing of credit spreads and makes "bank loans" vulnerable in the event of a deterioration in the economic outlook. We believe that the time has not yet come for a turnaround in price performance, as the short- and medium-term outlook of corporate bankruptcies remains positive for the time being and we continue to operate in an environment of potentially rising interest rates," said Reto Ineichen, CEO of Alpinum Investment Management.
It now remains to be seen how further cash flows will develop. In fact, 22 percent of the survey participants (see chart above) already assume that there will hardly be any more (positive inflows) in the next six months.
The next AVI Index will be published in January 2019.
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In 2023, numerous geopolitical risks came to the fore, supplemented by interest rate hikes by central banks in the fight against inflation. The conflict in Ukraine will soon last two years. In addition, the situation in the Middle East has worsened, particularly between Israel and Hamas. An escalation of the conflict to neighboring Arab countries has been prevented so far. Economic weaknesses are also evident in two of Switzerland's key trading partners: China and Germany. These developments are leading to a lack of important impetus from foreign trade. Geopolitical issues will continue to play an important role in the coming year. However, the past has shown that the impact of such events on the global financial markets is often short-lived.
Fewer sustainability investments, but more investments in pharmaceutical companies and the healthcare sector. Artificial intelligence en masse, but shares instead of gold. These are some of the resolutions of independent asset managers in Switzerland for the first quarter of 2024, according to the latest AVI Index.
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