INTRODUCTION

Key takeaways

•    A satisfying start of the year for the bulls
•    We remain tactically cautious on equities and positive on spreads. We recommend investors to favor an "all-weather" portfolio
•    Watch “antifragile assets”: gold is outperforming the S&P 500 since the bear market trough and bitcoin is by far the best performing asset year-to-date

While some respite was expected as we entered 2023, the start of the year was far from a relaxing one. After a hawkish start to the quarter, volatility especially in bonds, surged during March, following the collapse of Silicon Valley Bank. That led to fears about broader contagion across the banking system, that were bolstered by the sudden implosion of Credit Suisse and its acquisition by UBS backed by guarantees from the Swiss government. Some of the US Treasuries’ daily moves were the largest in decades, and the MOVE index of Treasury volatility hit levels last seen at the height of the global financial crisis. 

In the first part of this publication, we review the top 10 stories from the past quarter, which happened to be a satisfying start to the year, for the bulls. Big Tech stocks, bullion, bonds and bitcoin all recorded gains despite the second largest bank failure in US history, stubbornly high core inflation, two quarters in a row of declining S&P 500 earnings per share on a year-over-year basis and CDS spreads on the US sovereign debt higher than they have been since 2008.  

We then share the investment conclusions of our latest tactical asset allocation committee. The battle between the “bulls” and the “bears” is still raging and the winner has not yet been determined. While the technical background for equity markets has been improving recently, we keep our cautious stance on equities. Indeed, our view remains that the aftershocks of the Fed's policy tightening are starting to be felt in the financial system and the wider economy. We believe that the macro-economic context is starting to deteriorate and that we have entered another period of uncertainty, which should lead to an Equity Risk Premium re-rating.

Gold and bitcoin were among the best performing asset classes of the first quarter. They are perceived by many as “anti-fragile”, a concept which was developed in 2013 by Nassim Nicholas Taleb, the author of the best-selling book, The Black Swan. We discuss how “anti-fragility” could apply to investing and portfolio construction. 

Credit Suisse was unfortunately not “anti-fragile”; 2023 will be remembered as the year when the Swiss banking giant had to be rescued by UBS, the FINMA and the SNB. It did not come without pain for Credit Suisse shareholders, but also for the Tier 1 bonds (AT1) and/or Contingent Convertible bond (CoCos) holders as all Credit Suisse AT1 bonds plunged to (almost) zero, resulting in 16 billion dollars of notional being almost totally wiped out. In a dedicated focus note, we discuss the future of AT1 bonds, a niche asset class of more than 250 billion dollars. 

In the last section, we take a step back from investment perspectives and see how the Apple watch could change the daily life of diabetics. The firm from Cupertino has indeed made further progress towards integrating a blood glucose meter into its Apple watch.While our forecasts and views are subject to change, our commitment to serve our clients is not. We remain at your full disposal for any specific issues you like to discuss, so please do not hesitate to contact us.

Charles-Henry Monchau Chief Investment Officer