Our positioning: Emerging hope

Sentiment in industry is more upbeat, giving rise to hopes in Europe that the worst of the economic downturn is over. We’re reducing our underweight position in European equities, but remain defensively positioned overall.

With the downturn seemingly having bottomed out, Europe, in particular, appears to have taken a step towards recovery.

Economic data from the USA indicates the economy remains robust. The US economy grew recently by 3.3 percent, which is still above trend. Consumer confidence and sentiment in the industrial and services sectors have also improved of late. This means there’s currently no sign of a looming recession. The situation in Europe is rather different.

The slowdown in the region is more advanced, and is already being felt in Germany, the eurozone’s biggest economy. Sentiment in the economy also remains low by historical standards. However, the mood in industry has improved considerably of late. This is the first sign that the worst of the recession may be over. With the downturn seemingly having bottomed out, Europe, in particular, appears to have taken a step towards recovery. In response, we’re reducing our heavily underweighted position in European equities. We are maintaining a slight underweight, though, as we want to see clearer evidence that this bottoming-out process will last.

Monetary easing has become a more distant prospect.

The situation is somewhat better, then, but still slightly unsettling overall. Inflation rates remain above target. Core inflation stands at 3.9 percent in the USA, and at 3.3 percent in Europe. The 2 percent target is still a good way off. Progress on reining inflation in has faltered recently. Rising wage inflation is a cause for concern in both the USA and Europe. Sharp cuts to policy rates imminently appear difficult to achieve in this climate, as we pointed out last month. Instead the pressure on long-term interest rates is being maintained.

Swiss capital market interest rates have upside potential

We see further upside potential here, particularly in Switzerland. Not only are long-term interest rates at a much lower level than in other countries, they’ve also risen less sharply in the last two years due to more restrictive monetary policy. It means capital market interest rates in the USA and Europe have gone up five times more sharply than in Switzerland.

What’s more, investors on the bond market are still in the unusual situation of being less well remunerated for longer terms than shorter ones. In Switzerland, investors can earn almost 2 percent on the money market, whereas 10-year Swiss bonds are yielding just under 1 percent. However, a normalization of the yield curve through reductions in interest rates alone seems unlikely in our view. It’s more likely that capital market interest rates will also increase. This is the reason we still see both Swiss fixed income and Swiss real estate as relatively unattractive and remain underweighted in these asset classes.

Performance of asset classes

Currencies1 month in CHFYTD in CHF1 month in LC YTD in LC
Currencies
EUR
1 month in CHF
1.3%
YTD Year-to-date: since the start of the year in CHF

1.4%

1 month in LC Local currency
1.3%
YTD Year-to-date: since the start of the year in LC Local currency
1.4%
Currencies
USD
1 month in CHF
2.9%
YTD Year-to-date: since the start of the year in CHF
3.9%
1 month in LC Local currency
2.9%
YTD Year-to-date: since the start of the year in LC Local currency
3.9%
Currencies
JPY
1 month in CHF
0.4%
YTD Year-to-date: since the start of the year in CHF
–1.1%
1 month in LC Local currency
0.4%
YTD Year-to-date: since the start of the year in LC Local currency
–1.1%

Equities1 month in CHFYTD in CHF
1 month in LC YTD in LC
Equities
Switzerland
1 month in CHF
0.5%
YTD Year-to-date: since the start of the year in CHF
0.6%
1 month in LC Local currency

0.5%

YTD Year-to-date: since the start of the year in LC Local currency
0.6%
Equities
World
1 month in CHF
7.7%
YTD Year-to-date: since the start of the year in CHF
7.1%
1 month in LC Local currency
4.7%
YTD Year-to-date: since the start of the year in LC Local currency
3.1%
Equities
USA
1 month in CHF
9.5%
YTD Year-to-date: since the start of the year in CHF
8.8%
1 month in LC Local currency
6.4%
YTD Year-to-date: since the start of the year in LC Local currency
4.7%
Equities
Eurozone
1 month in CHF
4.5%
YTD Year-to-date: since the start of the year in CHF
3.6%
1 month in LC Local currency
3.2%
YTD Year-to-date: since the start of the year in LC Local currency
2.2%
Equities
United Kingdom
1 month in CHF
1.4%
YTD Year-to-date: since the start of the year in CHF
1.9%
1 month in LC Local currency
–0.7%
YTD Year-to-date: since the start of the year in LC Local currency
–1.1%
Equities
Japan
1 month in CHF
7.5%
YTD Year-to-date: since the start of the year in CHF
7.1%
1 month in LC Local currency
7.1%
YTD Year-to-date: since the start of the year in LC Local currency
8.3%
Equities
Emerging markets
1 month in CHF
2.9%
YTD Year-to-date: since the start of the year in CHF
1.8%
1 month in LC Local currency
0.1%
YTD Year-to-date: since the start of the year in LC Local currency
–2.0%

Fixed income1 month in CHFYTD in CHF
1 month in LC YTD in LC
Fixed income
Switzerland
1 month in CHF
0.0%
YTD Year-to-date: since the start of the year in CHF
–0.9%
1 month in LC Local currency

0.0%

YTD Year-to-date: since the start of the year in LC Local currency
–0.9%
Fixed income
World
1 month in CHF
1.8%
YTD Year-to-date: since the start of the year in CHF
1.4%
1 month in LC Local currency
–1.1%
YTD Year-to-date: since the start of the year in LC Local currency
–2.4%
Fixed income
Emerging markets
1 month in CHF
3.7%
YTD Year-to-date: since the start of the year in CHF
2.6%
1 month in LC Local currency
0.9%
YTD Year-to-date: since the start of the year in LC Local currency
–1.2%

Alternative investments1 month in CHFYTD in CHF
1 month in LC YTD in LC
Alternative investments
Swiss real estate
1 month in CHF
2.6%
YTD Year-to-date: since the start of the year in CHF
3.0%
1 month in LC Local currency

2.6%

YTD Year-to-date: since the start of the year in LC Local currency
3.0%
Alternative investments
Gold
1 month in CHF
2.1%
YTD Year-to-date: since the start of the year in CHF
2.1%
1 month in LC Local currency
–0.7%
YTD Year-to-date: since the start of the year in LC Local currency
–1.8%

Our positioning – Swiss focus

LiquidityTAA old TAA new
Positioning
Liquidity
CHF
TAA old Tactical asset allocation: short- to medium-term positioning
1%
TAA new Tactical asset allocation: short- to medium-term positioning
1%
Positioning Positioning compared to long-term investment strategy
Overweighted
Liquidity
Money market CHF
TAA old Tactical asset allocation: short- to medium-term positioning
10.0%
TAA new Tactical asset allocation: short- to medium-term positioning
8.0%
Positioning Positioning compared to long-term investment strategy
Overweighted
Liquidity
Total
TAA old Tactical asset allocation: short- to medium-term positioning
11.0%
TAA new Tactical asset allocation: short- to medium-term positioning
9.0%
Positioning Positioning compared to long-term investment strategy
Overweighted

Equities
TAA old TAA new
Positioning
Equities
Switzerland
TAA old Tactical asset allocation: short- to medium-term positioning
25.0%
TAA new Tactical asset allocation: short- to medium-term positioning
25.0%
Positioning Positioning compared to long-term investment strategy
Overweighted
Equities
USA
TAA old Tactical asset allocation: short- to medium-term positioning
8.0%
TAA new Tactical asset allocation: short- to medium-term positioning
8.0%
Positioning Positioning compared to long-term investment strategy
Underweighted
Equities
Eurozone
TAA old Tactical asset allocation: short- to medium-term positioning
1.0%
TAA new Tactical asset allocation: short- to medium-term positioning
3.0%
Positioning Positioning compared to long-term investment strategy
Underweighted
Equities
United Kingdom
TAA old Tactical asset allocation: short- to medium-term positioning
2.0%
TAA new Tactical asset allocation: short- to medium-term positioning
2.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Equities
Japan
TAA old Tactical asset allocation: short- to medium-term positioning
2.0%
TAA new Tactical asset allocation: short- to medium-term positioning
2.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Equities
Emerging markets
TAA old Tactical asset allocation: short- to medium-term positioning
9.0%
TAA new Tactical asset allocation: short- to medium-term positioning
9.0%
Positioning Positioning compared to long-term investment strategy
Overweighted
Equities
Total
TAA old Tactical asset allocation: short- to medium-term positioning
47.0%
TAA new Tactical asset allocation: short- to medium-term positioning
49.0%
Positioning Positioning compared to long-term investment strategy
Underweighted

Fixed incomeTAA old TAA new
Positioning
Fixed income
Switzerland
TAA old Tactical asset allocation: short- to medium-term positioning
15.0%
TAA new Tactical asset allocation: short- to medium-term positioning
15.0%
Positioning Positioning compared to long-term investment strategy
Underweighted
Fixed income
World
TAA old Tactical asset allocation: short- to medium-term positioning
10.0%
TAA new Tactical asset allocation: short- to medium-term positioning
10.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Fixed income
Emerging markets
TAA old Tactical asset allocation: short- to medium-term positioning
6.0%
TAA new Tactical asset allocation: short- to medium-term positioning
6.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Fixed income
Total
TAA old Tactical asset allocation: short- to medium-term positioning
31.0%
TAA new Tactical asset allocation: short- to medium-term positioning
31.0%
Positioning Positioning compared to long-term investment strategy
Underweighted

Alternative investmentsTAA old TAA new
Positioning
Alternative investments
Swiss real estate
TAA old Tactical asset allocation: short- to medium-term positioning
6.0%
TAA new Tactical asset allocation: short- to medium-term positioning
6.0%
Positioning Positioning compared to long-term investment strategy
Underweighted
Alternative investments
Gold
TAA old Tactical asset allocation: short- to medium-term positioning
5.0%
TAA new Tactical asset allocation: short- to medium-term positioning
5.0%
Positioning Positioning compared to long-term investment strategy
Neutral
Alternative investments
Total
TAA old Tactical asset allocation: short- to medium-term positioning
11.0%
TAA new Tactical asset allocation: short- to medium-term positioning
11.0%
Positioning Positioning compared to long-term investment strategy
Neutral
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