Model portfolios – Swiss focus

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Taking profits in a higher interest rate environment

Capital market interest rates remain at elevated levels and have even risen further in the US recently. The high demand for capital is likely to maintain upward pressure on interest rates for the time being. This continues to have an impact on the financial markets. Equity markets with a lower proportion of technology shares, in particular, have recorded significant losses. Technology-heavy equity markets, by contrast, have so far largely managed to weather the headwinds. In Switzerland, too, capital market interest rates remain elevated. The yield to maturity on 10-year government bonds remains at around 0.5 per cent, a good 20 basis points above the level at the start of the year. For Swiss real estate funds, the prospect of further SNB interest rate rises is therefore becoming an increasingly significant concern. Whilst the tight supply of housing and high demand remain supportive factors, in our view they no longer sufficiently offset the pressure from rising interest rates to justify an overweight position. We are therefore taking profits and reducing the position to neutral.

Interest income

Income

Balanced

Growth

Capital gains