Our positioning: Outlook becoming more uncertain

Greater restraint in US monetary policy raises the risks for the US equity market – particularly in light of its high valuations. We’re currently using a slight correction to Swiss real estate funds to close our underweighted position.

US inflation rates hit a new high of 6.8 percent in November – a level not seen since the 1980s. The bright economic outlook still points to continued pressure on inflation – despite the declining contribution of energy prices over the coming months. Chair of the Federal Reserve Jay Powell also believes that inflation risks are high over the medium term, as he recently conceded before a Senate committee. This means that the expansive monetary policy is likely to end faster. If the new Omicron variant turns out to be a greater threat to the economy and financial markets, there would be less room for manoeuvre in monetary policy than a year ago, due to higher inflation. More restrained monetary policy could have a negative impact on the US markets. As a result, there is growing uncertainty on the investment horizon.

As a result, there is growing uncertainty on the investment horizon.

Reduction of US risks

The new coronavirus variant spooked the equity markets last month. Prices fell sharply but recovered quickly to hit new record highs in the USA. This means that US equity valuations remain at very high levels, which have only ever been exceeded during the dotcom bubble. Although economically strong leading indicators still support the high valuations, normalization is likely, especially with less supportive monetary policy. For this reason, we regard the upturn potential of US equities as limited. The situation in Japan is very different, however: firstly, Japan still has much more catch-up potential than other industrialized nations. Secondly, with inflation standing at 0.1 percent in October, Japan is faced with hardly any inflationary pressure. And finally, the Japanese yen is very attractively priced against the Swiss franc – in complete contrast to the US dollar. That’s why we’re reducing the risk in US equities and buying Japanese equities instead.

Swiss corporate bonds attractive

Yields to maturity were also more volatile last month. At the same time, risk premiums on corporate bonds rose. In Switzerland, these credit spreads have now exceeded the pre-coronavirus level for companies with good credit standing. This may reflect concerns over the new virus variant. But this also presents a tactical opportunity: we recommend taking an overweighted position in Swiss corporate bonds at the expense of their global counterparts and anticipate a normalization of Swiss credit spreads. We’re maintaining a heavily underweighted position in global bonds in light of interest rate change risks.

Closing underweighted position in real estate

Swiss real estate funds underwent a slight correction last month. The valuation is still above the fair level derived from long-term interest rates. However, it seems unlikely that the valuation will return to its fair value in the near future. Price fluctuations this year underlined that demand remains strong, regardless of price. That’s why we’re using the latest price weakness to neutralize our underweighted position. 

Performance of asset classes

Currencies1 month in CHFYTD in CHF1 month in LC YTD in LC
Currencies
EUR
1 month in CHF
–1.2%
YTD  Year-to-date: since the start of the year in CHF

–3.5%

1 month in LC  Local currency
–1.2%
YTD  Year-to-date: since the start of the year in LC  Local currency
–3.5%
Currencies
USD
1 month in CHF
1.4%
YTD  Year-to-date: since the start of the year in CHF
4.3%
1 month in LC  Local currency
1.4%
YTD  Year-to-date: since the start of the year in LC  Local currency
4.3%

Equities1 month in CHFYTD in CHF
1 month in LC YTD in LC
Equities
Switzerland
1 month in CHF
0.8%
YTD  Year-to-date: since the start of the year in CHF
20.8%
1 month in LC  Local currency

0.8%

YTD  Year-to-date: since the start of the year in LC  Local currency
20.8%
Equities
World
1 month in CHF
–0.3%
YTD  Year-to-date: since the start of the year in CHF
24.9%
1 month in LC  Local currency
–1.7%
YTD  Year-to-date: since the start of the year in LC  Local currency
19.7%
Equities
USA
1 month in CHF
0.4%
YTD  Year-to-date: since the start of the year in CHF
29.4%
1 month in LC  Local currency
–0.9%
YTD  Year-to-date: since the start of the year in LC  Local currency
24.0%
Equities
Eurozone
1 month in CHF
–3.7%
YTD  Year-to-date: since the start of the year in CHF
15.7%
1 month in LC  Local currency
–2.5%
YTD  Year-to-date: since the start of the year in LC  Local currency
19.9%
Equities
United Kingdom
1 month in CHF
0.0%
YTD  Year-to-date: since the start of the year in CHF
19.6%
1 month in LC  Local currency
1.2%
YTD  Year-to-date: since the start of the year in LC  Local currency
18.5%
Equities
Japan
1 month in CHF
–0.2%
YTD  Year-to-date: since the start of the year in CHF
7.4%
1 month in LC  Local currency
–1.0%
YTD  Year-to-date: since the start of the year in LC  Local currency
13.0%
Equities
Emerging markets
1 month in CHF
–0.5%
YTD  Year-to-date: since the start of the year in CHF
2.8%
1 month in LC  Local currency
–1.9%
YTD  Year-to-date: since the start of the year in LC  Local currency
–1.5%

Fixed income1 month in CHFYTD in CHF
1 month in LC YTD in LC
Fixed income
Switzerland
1 month in CHF
0.6%
YTD  Year-to-date: since the start of the year in CHF
–0.5%
1 month in LC  Local currency

0.6%

YTD  Year-to-date: since the start of the year in LC  Local currency
–0.5%
Fixed income
World
1 month in CHF
0.2%
YTD  Year-to-date: since the start of the year in CHF
–0.3%
1 month in LC  Local currency
–1.2%
YTD  Year-to-date: since the start of the year in LC  Local currency
–4.5%
Fixed income
Emerging markets
1 month in CHF
0.2%
YTD  Year-to-date: since the start of the year in CHF
2.4%
1 month in LC  Local currency
–1.2%
YTD  Year-to-date: since the start of the year in LC  Local currency
–1.9%

Alternative investments1 month in CHFYTD in CHF
1 month in LC YTD in LC
Alternative investments
Swiss real estate
1 month in CHF
–3.1%
YTD  Year-to-date: since the start of the year in CHF
3.5%
1 month in LC  Local currency

–3.1%

YTD  Year-to-date: since the start of the year in LC  Local currency
3.5%
Alternative investments
Gold
1 month in CHF
–1.5%
YTD  Year-to-date: since the start of the year in CHF
–1.8%
1 month in LC  Local currency
–2.8%
YTD  Year-to-date: since the start of the year in LC  Local currency
–5.9%

Our positioning – Swiss focus

LiquidityTAA old TAA new
Liquidity
CHF
TAA old  Tactical asset allocation: short- to medium-term positioning
11.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
9.0%
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%

Equities
TAA old TAA new
Equities
Switzerland
TAA old  Tactical asset allocation: short- to medium-term positioning
23.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
23.0%
Equities
USA
TAA old  Tactical asset allocation: short- to medium-term positioning
10.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
8.0%
Equities
Eurozone
TAA old  Tactical asset allocation: short- to medium-term positioning
3.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
3.0%
Equities
United Kingdom
TAA old  Tactical asset allocation: short- to medium-term positioning
4.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
4.0%
Equities
Japan
TAA old  Tactical asset allocation: short- to medium-term positioning
2.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
4.0%
Equities
Emerging markets
TAA old  Tactical asset allocation: short- to medium-term positioning
8.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
8.0%
Equities
Total
TAA old  Tactical asset allocation: short- to medium-term positioning
50.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
50.0%

Fixed incomeTAA old TAA new
Fixed income
Switzerland
TAA old  Tactical asset allocation: short- to medium-term positioning
17.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
19.0%
Fixed income
World
TAA old  Tactical asset allocation: short- to medium-term positioning
6.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
4.0%
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%
Fixed income
Total
TAA old  Tactical asset allocation: short- to medium-term positioning
29.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
29.0%

Alternative investmentsTAA old TAA new
Alternative investments
Swiss real estate
TAA old  Tactical asset allocation: short- to medium-term positioning
5.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
7.0%
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%
Alternative investments
Total
TAA old  Tactical asset allocation: short- to medium-term positioning
10.0%
TAA new  Tactical asset allocation: short- to medium-term positioning
12.0%
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