As outlined in our H2 2022 market outlook, we believe that volatility, uncertainty, complexity, and ambiguity in the financial markets will continue to dominate the environment for some time. So how should we manage our client portfolios in this VUCA world?
We believe that the key to success will be in keeping to our investment philosophy and principles, namely:
- Encourage our clients to stick to their financial goals and risk profile
- Follow our investment process thoroughly
- Favour a agile and dynamic asset allocation managed with precise quantifiable criteria
- Invest asymmetrically to avoid major equity and market drawdowns
- Be selective in our stock and credit picking
- Think out of the box to identify contrarian, less favoured investment opportunities.
We believe that a combination of these principles is vital to managing our clients’ assets through the current VUCA environment.
With regards to tactical asset allocation, our stance on risks assets hasn’t changed since our last monthly investment strategy committee. Overall, the weight of the evidence (i.e the aggregation of our fundamental and market indicators) remains negative for equity markets. As such, we maintain an “unattractive” view on stocks. Our least favored market remains the Eurozone (very unattractive). We do a have a positive stance on US and Swiss equities, however. We are cautious on Japan and Emerging Markets Latam was downgraded from positive to cautious.
From a sector and style preferences perspective, we favor a diversified approach mixing defensive growth, high quality tech names and some value names (e.g some late cyclical stocks trade on very attractive free cash flow yields). We keep a quality and large-caps bias in our portfolios.
In Fixed Income, we have a cautious view on credit spreads and see rates as being unattractive. The bright spot in fixed income seems to be the 0-2 year investment grade & high yield segment.
In Forex, we are cautious on all currencies against the dollar.
We maintain a positive view on Commodities and a “preference” stance on Gold.
In the current market context, alternative investments, including equity market neutral, volatility arbitrage and macro offer a means of building value and resilience into portfolios. We have a positive view on liquid hedge funds strategies.