It is easy to lose track of the basic essentials in the daily flood of information. To successfully manage clients’ assets, it is vital to define a strategic investment world view that provides long-term guidance. This is a macro picture of the capital markets that influences all of our investment decisions.
Debt from industrialised countries is increasing relentlessly. Not just in Europe, but also in the USA and Japan. It is highly unlikely that this debt will ever be settled. Ultimately, there are two ways to permanently finance the debt: a large debt cut or permanently low interest rates. In our view, it is very unlikely that the low interest rate environment will change any time soon.
The ultra-loose central bank monetary policy is creating a global currency devaluation competition. The weaker a currency is, the more competitive the economy, according to widespread opinion. This is a competition between economies that is likely to have few winners.
Massive worldwide debt, an ageing population in industrialised countries and structural problems in various emerging markets has put a limit on the potential growth of the global economy. We should therefore say goodbye to the rapid growth rates recorded at times in previous decades. In our view, the years of plenty are over.
We believe a robust investment strategy is needed in this environment – a strategy that follows clear rules, uses a variety of asset classes and is not based on the past. The risk-reward ratio is the key factor in every (!) investment decision. Price volatility is not risky in itself and can also offer attractive opportunities from time to time to investors who are thinking in the long term.
Top-quality equities should, in our view, account for a significant portion of a broadly-diversified portfolio. These are equities of companies that generate reliable profits, show sustainable growth, are globally-positioned and have little debt.
Bonds stabilise a portfolio. Using an opportunistic investment approach, attractive bonds can also be found during periods of low interest rates. In addition, we believe gold (direct / indirect) also has a place in a portfolio. This acts as an insurance against the known and unknown risks in the financial system.