Value outlook
Fixed income focus
M&A perspectives
Alts and 60/40
Fixed income focus
Alts and 60/40
M&A perspectives
Value outlook
Alts and 60/40
Fixed income focus
Value outlook
M&A perspectives
Manuela D’Onofrio
Álvaro Manteca
David Storm
Lars Kalbreier
Willem Sels
There are more distressed debt issuers coming to the market now that interest rates are higher. Which sectors and companies provide the best of these opportunities right now and what could be the next Thames Water to look out for?
Distressed debt is a specialised market that requires a high level of risk tolerance and even higher levels of research. Companies can be in distress for many reasons but they are in distress nevertheless. Default or restructuring are looming risks that one should not underestimate. For investors interested in this market, we recommend diversified exposure via specialised managers, long-only strategies or hedge funds.
Carlos Mejia
Location:
Zurich, Geneva
Firm:
Rothschild
Job:
CIO
Renato Zaffuto
Richard de Groot
Inflation outlook
Russian invasion impact
Future of ESG
Commodities viewpoints
In Association with
Thomas Wille
What is your view on Chinese equities at the moment? Have you reduced your exposure recently, and if so, where did you move money instead?
China's economy is undergoing a structural and cyclical slowdown evidenced by an ageing population, low productivity of the public sector, and a real estate crisis. Consumer and business confidence are heavily depressed by the crisis in real estate, which accounts for about 70% of private wealth and 25% of GDP. Accordingly, we have reduced our positioning on Chinese equities and increased exposure to India equities, which are supported by higher consumption growth.
Manuela D’Onofrio
Location:
Milan
Firm:
UniCredit
Job:
Head of global investment strategy, private banking division
Many investors have turned negative on Chinese government and corporate bonds in the wake of lockdowns. Have you cut your exposure to these assets in the last three months and if so, what did you replace it with?
We have kept a neutral view on Chinese government bonds and Asian investment grade bonds.
We expect continued volatility in bond markets after new data releases on inflation and policy announcements. Such a backdrop deters us from taking duration risk. But Asia investment grade yields have moved up to 5.3%, which looks appealing from a historical perspective.
We believe short-duration – three to five years – investment grade bonds will continue to be the sweet spot in the coming months. This segment still offers decent yields due to the flat rates curve, and returns should be much less volatile now that the market is pricing for aggressive Fed rate hikes. This part of the curve could also benefit from tighter spreads and a pull-to-par effect in the next two years.
The two key risks for Chinese government bonds remain a faster-than-expected tightening of US monetary policy and a sharper slowdown in Chinese economic growth. On the former, the market has already moved to price an aggressive path of Fed policy normalisation over the coming year, and we are seeing signs that the Fed is not myopic to inflation and is sensitive to downside growth risks. On the latter, we take some comfort from the fact that monetary and fiscal policies are now being eased to support growth, with prospects of further stimulus. Additionally, some large cities are beginning to reopen, and it would appear that policymakers are lifting recent property sector restrictions, such as the ability to access presale funds.
We currently recommend a strategic allocation to the asset class given near-term risks associated with the Fed’s normalisation and a changing geopolitical landscape. We have tactically become more positive on select short-duration emerging market credit given current attractive valuations and our view that rate hike expectations in the front end of yield curves look full. We note that the sovereign index yield is now around 8% and the corporate index yield is close to 7%. We anticipate total returns for the asset class in a baseline scenario of mid-single-digits through to year-end.
Mark Haefele
Location:
Zurich
Firm:
UBS Wealth Management
Job:
CIO
Artificial intelligence has been a hot topic this year. How are you accessing the theme and do you think AI will have an inflationary or disinflationary effect?
Roy Amara, an American researcher, scientist and futurist, once said: ‘We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.’ AI will be no different.
We believe that investors should not turn a blind eye to an important long-term key technology because of short-term stock market hype. Investors should not limit their investments to just one industry and/or sub-industry, but should look for interesting investment opportunities across all sectors. Proactive risk management, rebalancing of positions and a sober stop-loss strategy are an absolute must after the huge price rises of recent weeks and months.
On the other hand, it is necessary to analyse which companies will become obsolete in the next few years due to AI technology, or which are at risk both in terms of revenue growth and margins. It is not too late to divest from these companies, as the AI train has already left the station and cannot be reversed. In this perceived hype build-up, selection is everything when it comes to implementation. For individual stocks, valuation does not seem to matter at the moment, but one thing is certain: in the medium to long term, even those trading at more than 20 or 30 times sales will come back to earth.
New disruptive technologies always have a deflationary effect on the economy as a whole. As with previous waves of technology, which have all had a disinflationary effect, AI will be no different, except that it may happen more quickly.
Thomas Wille
Location:
Zurich
Firm:
LGT
Job:
Head of research and strategy
Søren Funch Adamsen
The EU has recently unveiled its first green bonds standard. Do you plan to add more green bonds to portfolios in the coming weeks, and what are the potential challenges you see within this space?
We are looking to add more green bonds to our portfolios. For the time being, this is mostly relevant for our dedicated sustainability products, but it is likely to expand over time.
There are, however, two main obstacles for green bonds at the moment. First, there is still confusion about whether it is the issuer or the purpose of the issuance that matters. Bonds may be issued with sustainable purposes, but the issuer may not be eligible for products with very high sustainability requirements. Second, green bonds still seem to be concentrated in Europe. In order to be able to truly diversify and replace traditional bond portfolios, the market has to grow, not least in terms of geography.
Søren Funch Adamsen
Location:
Copenhagen
Firm:
Danske Bank
Job:
Head of portfolio construction
Fredrik Öberg
Steady M&A activity means there are fewer fund providers every year. Does it shrink your asset allocation options and do you find this challenging? Do you expect the consolidation to accelerate next year?
When it comes to large liquid positions in the capital market, there are still many options to choose from and these are also covered by different variants of ETFs, both index-tracking and active. In the case of exposures that are local and/or less liquid, the negative effects of consolidation are noticeable. There is less to choose from and those that do exist may have capacity problems. Here, the ETF market also works less well as we generally want actively managed products in this area.
So far, our platform is functioning well and existing fund companies are also launching products on an ongoing basis that at least partially counteract the M&A effects. I expect M&A to continue next year as there are clear economies of scale in the industry and the complexity and cost of running a fund company have increased in recent years. Whether there will be an acceleration or not is more difficult to answer. My estimate is that the process is fairly linear.
Fredrik Öberg
Location:
Stockholm
Firm:
SEB Private Banking
Job:
CIO, investment strategy
Norman Villamin
Yves Bonzon
How are you hedging your client portfolios against inflation?
US and European inflation will ease from current levels, but the war in Ukraine marked the end of the neoliberal era, characterised by expanding globalisation, financialisation and continued supply abundance. Going forward, with the ‘peace dividend’ gone, supply will act as a constraint, and inflation is likely to structurally settle somewhere above 3% – it will no longer sit below the 2% disinflationary equilibrium that it held for 30 years. We have tilted our portfolio construction to better reflect this new balance in inflationary forces. As a first step, we bought Canadian equities, the unintended beneficiaries of the commodity market reset which followed Russia’s invasion of Ukraine. Second, we rebalanced our style exposure, which previously favoured quality, by increasing our exposure to the value factor, which should also benefit from structurally higher prices. We are prepared to continue to take advantage of market weakness this year and to reposition portfolios in line with the new reflationary paradigm and the exit from financial repression.
Yves Bonzon
Location:
Zurich
Firm:
Julius Baer
Job:
CIO
Anja Hochberg
How are you hedging your client portfolios against inflation?
We believe the best hedge against inflation remains real and sustainable returns. We are maintaining moderate duration in portfolios, focusing increasingly on high cashflows/high dividend stocks, and carry on quality corporate bonds in the investment grade and upper high yield segment. Cash is increasingly well remunerated in US dollar portfolios, above two-year US inflation breakevens.
We do not view gold as a good hedge against inflation in a monetary tightening cycle. US inflation-protected bonds suffered in the past six months as inflation breakevens dropped on the back of recession fears and central banks’ higher credibility in their fight against inflation.
Vincent Manuel
Location:
Paris
Firm:
CA Indosuez
Job:
CIO
Vincent Manuel
Will Hobbs
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Carlos Mejia
Location:
Zurich
Firm:
Rothschild
Job:
CIO
Mark Haefele
Stephane Monier
Carlos Mejia
Cesar Perez Ruiz
Charles-Henry Monchau
Dan Scott
Guillaume Menuet
Christian Nolting
Michael Strobaek
Fahad Kamal
Moz Afzal
edMUND sHING
Philipp Baertschi
Bob Homan
This year has tested investors’ appetite for sustainable portfolios. Have you seen significant outflows on this front and how are you addressing client reservations?
We have not seen any significant outflows. Sustainability will continue to drive portfolio opportunities. We are witnessing the most profound transformation of our economies since the Industrial Revolution and it will disrupt the investment universe. We have entered a new paradigm where the transition of energy systems is set to accelerate, shaped by energy security and climate neutrality. The environmental transition will therefore continue to boost the case for investment in companies focused on building a more resilient and greener future. In this context, current volatility could offer a window of opportunity to position portfolios to benefit from the environmental transition in years to come.
Stéphane Monier
Location:
Geneva
Firm:
Lombard Odier Private Bank
Job:
CIO
Stéphane Monier
Johann Guggi
Volatility is on the rise. What investment tools are you using to take advantage of that? Have you added exposure to investments that will perform better in volatile markets?
Using volatility as an asset class has been one of our favourite investment themes throughout the year. Specifically, we are looking for tactical opportunities in the options market across all traditional asset classes, whether for portfolio protection or tactical bets. During the year, we took put and call options on currencies, equity indices and directly on the Vix index. For example, we bought S&P 500 put options ahead of the Jackson Hole meeting in August to hedge against a more hawkish tone from the Fed officials that would derail the market. This is exactly what happened, and the trade allowed us to amortise some of the negative impact on equity markets.
Similarly, there were specific opportunities to sell call options to reduce existing positions at a higher level following the summer rebound or to buy put spreads on the S&P 500 to hedge against further deterioration in the equity markets when the outlook was uncertain.
Cesar Perez Ruiz
Location:
Geneva
Firm:
Pictet Wealth Management
Job:
CIO
Cesar Perez Ruiz
Norman Villamin
Have you increased your allocation to private debt this year and what are your favourite fund picks in the space? Are there any areas that are starting to look alarming in private debt?
Legacy private debt funds will need to deal with a default cycle moving through both the US and European economies following the long period of credit expansion via private debt in recent years. This should create opportunities for managers skilled at debt restructuring. New vintages of private debt should benefit from not only high coupons but also stronger covenants and, in some cases better collateral backing to offer yield-seeking investors a yield pick-up and also improved credit quality compared with previous vintages.
Norman Villamin
Location:
Zurich
Firm:
Union Bancaire Privée
Job:
CIO wealth management
Willem Sels
Jean-Damien Marie
Clémentine Gallès
Carlos Mejia
David Storm
Has the energy crisis in Europe impacted your allocation to the energy sector? Have you changed asset allocation elsewhere in response to surging energy costs, especially when it comes to European assets?
In the shorter term, oil majors have high cashflow yield and are trading at historic discounts to the broader market, but we are more focused on utilities and renewables. We believe the EU is clearly emphasising the need to provide sufficient capital to these sectors, in order to finance electrification, deliver better, lower carbon energy and boost energy security. This provides a secular tailwind to these areas. On the other side are energy-intensive industries, such as chemicals, which face a headwind of uncertainty over energy rationing. Meanwhile, consumers face higher energy bills for longer, which impacts discretionary spending. These are key reasons for our underweight to European equities. The energy crisis has also created uncertainty over the EU emissions allowances market, so we exited a position we had long held here and will re-engage in the future.
David Storm
Location:
London
Firm:
RBC Wealth Management
Job:
CIO
Jean-Damien Marie
What is your view on Chinese equities at the moment? Have you reduced your exposure recently, and if so, where did you move money instead?
We believe it will take time for investors to change their perception of Chinese equities after years of disappointment. That said, we see significant upside potential given how depressed sentiment towards this asset class appears to be.
We have maintained our exposure to China, but have favoured indirect exposure (via developed markets equities) to local shares. We are willing to wait for additional signs that the Chinese economy is turning the corner but our tendency would be to increase exposure to Chinese equities in the coming months.
Jean-Damien Marie
Location:
London
Firm:
Barclays Private Bank
Job:
Global co-head investments
Philipp Baertschi
Has the energy crisis in Europe impacted your allocation to the energy sector? Have you changed asset allocation elsewhere in response to surging energy costs, especially when it comes to European assets?
We generally do not have a direct allocation to the energy sector in our portfolios. Most of our equity strategies are run in a fairly style- and sector-neutral manner with a highly active stock picking component. Therefore, our allocation to the sector is broadly neutral and has not changed much.
We have positioned our portfolios more defensively since March this year as it became clear that surging energy costs will lead to a recession in Europe eventually. We have also trimmed credit risk in portfolios and have moved up in quality.
Philipp Baertschi
Location:
Zurich
Firm:
J Safra Sarasin
Job:
CIO
Renato Zaffuto
Has the energy crisis in Europe impacted your allocation to the energy sector? Have you changed asset allocation elsewhere in response to surging energy costs, especially when it comes to European assets?
We had already started to move more towards alternative and sustainable sources in the energy space before the current crisis. We have a robust ESG orientation in our investment approach and, as a result, have strengthened our positive tilt in favour of solar, wind, hydrogen and other clean energy producers. This crisis meant we cut our overall exposure to European equities to underweight and reduced sectors which have high energy costs and are not able to pass through increasing final prices. We also reduced our weighting to sectors that are highly sensitive to interest rate rises. On the other hand, we maintained a strong exposure to export-driven sectors – due to currency weakness – and to service, software, food and other more defensive sectors.
Renato Zaffuto
Location:
London
Firm:
Fideuram Asset Management
Job:
London branch manager
Willem Sels
What are the biggest risks your portfolios face going into 2023 and have you hedged portfolios against these threats?
The biggest risk is a turn in the market’s focus from higher rates to slower growth. We’re close to peak rates, but recent hikes will undoubtedly weigh on growth, albeit with a slight lag. As a result, we expect several quarters of slowing growth. We don’t think this is sufficiently priced in yet; cyclicals strangely rebounded recently, and the analyst consensus is still leaning towards positive earnings growth in 2023. So, we think equities face a cyclical headwind which we have positioned for by being underweight global equities and focused on quality stocks, as well as through our defensive sector positioning and our preference for the US over Europe.
The other risk is that core inflation remains stickier than expected because we’ve only seen one month of declines in the US so far. If inflation was to come down more slowly than the Fed hoped, it could be at risk of a policy error by tightening too much. However, such a scenario would likely hurt equities more than high-rated bonds, because it would create a drag on growth and investors would seek refuge in safe havens. Our overweight position in high-rated bonds and uncorrelated hedge funds protects us against such a scenario.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
Christian Nolting
How are you hedging your client portfolios against inflation?
A mix of persistent high inflation rates, tight monetary policies, geopolitical risk and expected slower economic growth is weighing on the outlook for most asset classes. The fragility of the outlook points to increased volatility in bond and equity markets. Given this broad range of market risks, we think a cautious investment stance is advisable. We are underweight in equities and bonds and have a defensive bias within both asset classes. Given elevated geopolitical risk and high energy prices, we are hedging risk via an overweight in commodities.
Christian Nolting
Location:
Frankfurt
Firm:
Deutsche Bank
Job:
Global CIO and head of CIO and investment solutions
Fahad Kamal
How are you hedging your client portfolios against inflation?
There have been very few places to hide recently. Equity markets have been hit by tremendous economic uncertainty, fixed income is suffering from rising rates and even traditional safe havens such as gold have been facing rough trading.
To combat some of these adverse factors we have recently initiated a position in real assets, more specifically a diversified portfolio of infrastructure and specialist property assets. The benefits of this exposure are threefold. First, diversification from other risk assets such as equities. The cashflows produced by real assets are often contractually stipulated far into the future, and so are not as sensitive to short-term economic factors in the same way as equities. Second, they provide an attractive income stream. After subtracting the cost of managing the asset, much of the cashflows produced are paid out to investors, generating steady returns through attractive yields. Third, they have reasonable sensitivity to inflation. Many usage contracts for real assets include inflation clauses, adjusting cashflows throughout the life of the asset.
* Please note that Kleinwort Hambros and Société Générale Private Bank do not always align on asset allocation calls
Fahad Kamal
Location:
London
Firm:
Kleinwort Hambros
(SocGen Group*)
Job:
CIO
Álvaro Manteca
How are you hedging your client portfolios against inflation?
We have not established any specific hedge against inflation risk in our portfolios, although we have recommended an overweight investment in raw materials and physical assets, as well as in companies with strong balance sheets and an ability to pass on price increases to consumers.
Álvaro Manteca
Location:
Madrid
Firm:
BBVA
Job:
Cross-asset strategist
Bob Homan
Where is the sweet spot in fixed income markets right now?
A diversified bond portfolio seems to have good return prospects in any scenario in 2024. We think that long-term interest rates will fall in 2024, which means that, in addition to the coupon rate – currently around 3.5% for European government bonds – we also forecast price gains on bonds.
We do expect somewhat wider spreads due to weaker economic conditions but the high carry of high yield and emerging market debt, for example, will offset that. Within the government bond portfolio we prefer a barbell strategy, anticipating policy rate cuts and further deceleration of inflation.
The benefit of a mix of different bond categories is that if the recession gets deeper than expected, interest rates will fall more sharply and you earn more on your government bonds. Credit spreads in this scenario will increase more strongly so you will come into negative performance territory with, for example, high yield bonds.
On the other hand, when the economy continues to do better than expected and inflation persists, interest rates rise, and government bonds will suffer from that but credit spreads will fall and performance will be gained by the more risky bonds.
Thus, for a mixed bond portfolio, thanks to the diversification within the asset class, our expected return in our central scenario, as well as in the bad or good scenario, comes out around 7%.
Bob Homan
Location:
Amsterdam
Firm:
ING
Job:
Head of investment office
Clémentine Gallès
How are you hedging your client portfolios against inflation?
High inflation is likely to persist for some time, meaning further monetary tightening by central banks and more risk for economic activity in developed economies. The threat to Russian gas supplies poses an additional risk for Europe. In this context, our investment strategy aims to protect against inflation and recession risks. We are sticking to our underweight in the eurozone in light of the specific risks overhanging the region. At the same time, we are neutral on bond markets, having done well from our underweight early in the year. Yields may now look attractive, particularly real yields, but further rate hikes would knock performance back again. We have therefore been more careful for several months while encouraging very diversified positions. We have redoubled our prudent approach to equity markets, reweighting towards defensive and resilient sectors. We have reinforced our exposure to oil stocks as they have offered protection from the ongoing energy shock. This is particularly the case for oil companies that are diversifying their income base and investing in the energy transition through renewable energy.
Clémentine Gallès
Location:
Paris
Firm:
Société Générale Private Banking
Job:
Chief economist and strategist
Johann Guggi
How are you hedging your client portfolios against inflation?
When it became clear inflation had become more persistent than expected, we shifted part of our portfolio towards a more defensive stance. We have kept our short duration in developed markets (our base currencies) during this period. We also think many things are coinciding right now. For instance, the high inflation is a result of high energy prices and supply chain issues that are not demand-driven. The geopolitical landscape is also more tense than usual. Therefore, we think some of the best ‘hedges’ are still in companies and areas that will benefit from structural changes in our society and economies. We continue to increase our investments into sustainable energy, healthcare and other areas that will have a structural tailwind for many years to come.
Johann Guggi
Location:
Stockholm
Firm:
Handelsbanken
Job:
CIO asset allocation
Richard de Groot
This year has tested investors’ appetite for sustainable portfolios. Have you seen significant outflows on this front and how are you addressing client reservations?
We are receiving more questions from clients on this issue, although most of them understand the reasons for the lagging returns, and we have not registered strong outflows.
In our communication, we explain the impact of current developments, but also focus on longer-term developments. The energy transition is needed more than ever and we also believe that companies scoring high on ESG will do better in a recession.
Richard de Groot
Locations:
Amsterdam
Firm:
ABN Amro
Job:
Global head of investment centre
Mark Haefele
This year has tested investors’ appetite for sustainable portfolios. Have you seen significant outflows on this front and how are you addressing client reservations?
The relative underperformance of leading ESG strategies year-to-date deepened but we expect the era of security and the global transition toward stability and sustainability to continue to generate attractive long-term opportunities. Plans to improve energy security, environmental security, food security and technological security are likely to be among the key long-term growth drivers in the years to come. Alternative energy and agriculture and food remain key themes, with the former delivering a strong outperformance in light of the US climate bill.
Sustainable investing (SI) assets have grown tenfold in just three years, reaching about $2.47tn as of the end of Q2 2022, according to Morningstar, making SI the fastest-growing segment in the global asset management industry. Despite the challenging market performance this year, fund flows into sustainable investments remain notably more resilient than the broader market. According to Morningstar, net inflows into sustainable funds slowed by a further 62% from $87bn last quarter (revised) to $32.6bn in Q2 2022. Nonetheless, that still outperformed the overall fund industry, which suffered $280bn net outflows over the period amid global recession and inflation concerns. Fund launches slowed, and overall global sustainable fund assets dropped 13.3% on the quarter, representing the largest quarterly decline since Q1 2020. However, these funds continue to show resilience versus conventional investment funds, which shrunk 14.6% in the period.
Mark Haefele
Location:
Zurich
Firm:
UBS Wealth Management
Job:
CIO
Lars Kalbreier
How big of a share of private markets do you have in an average client portfolio? How have mixed asset portfolios with private markets performed compared with traditional 60/40 portfolios in the last year?
It is difficult to find a representative exposure to private markets in a client portfolio as they exhibit strong dispersion. Indeed, it depends on liquidity needs but also on other factors such as age, and how familiar an investor is in dealing with these products.
For a €10m portfolio of a typical client, we would recommend allocating between 15% to 20% to private markets. The amount is important, but private asset allocation and portfolio construction are also key, especially as a private investor cannot rebalance their portfolios. This is why we have developed a dedicated private market strategic asset allocation. Fund selection is also crucial as the difference between a first- and even a third-quartile fund represents several percentage points of performance.
Adding 15% of our private markets model portfolio to our liquid strategic asset allocation would have added 2% to it over 2022, a black swan year even for private markets. Over three years as of December 2022, it would have added more than 5% a year.
Lars Kalbreier
Location:
Zurich/Geneva
Firm:
Edmond de Rothschild
Job:
Global CIO, private banking
Anja Hochberg
Volatility is on the rise. What investment tools are you using to take advantage of that? Have you added exposure to investments that will perform better in volatile markets?
The recent increase in volatility raises long- and short-term considerations. The latter refers to risks associated with the current market environment, such as uncertainty about inflation and business dynamics. The longer-term reflects a profound change in the liquidity structure within markets.
We are addressing both of these. First, we are reflecting structurally higher volatility, especially for bonds, in our strategic allocation. Second, we are playing this very explicitly in our tactical allocation. A good example is the protection we have gained from a collar strategy. This dampens the impact of higher volatility on the bond side by lowering the bond quota compared with the benchmark, and provides downside protection for the structurally higher equity quota.
On an instrument level, we are using alternatives, such as real estate funds, private equity or insurance-linked securities, which are less impacted by big market swings and elevated volatility.
Anja Hochberg
Location:
Zurich
Firm:
ZKB
Job:
Head of multi-asset solutions
Carlos Mejia
Dan Scott
Volatility is on the rise. What investment tools are you using to take advantage of that? Have you added exposure to investments that will perform better in volatile markets?
We have not added any specific volatility instruments over the past few months, but we continue to believe in and employ traditional securities to smooth volatility. We have been cautiously adding longer-dated US Treasuries, for example, and maintain our allocation to alternatives such as insurance-linked securities, catastrophe bonds, as well as gold, to provide protection from market volatility.
As multi-asset class investors we aim to budget risks accordingly. However, volatility is not a good measure for predicting risk. Correlations are not always stable and returns are not equally distributed. Blindly following a ‘low volatility’ strategy could lead to missing out on low-priced assets and could equally encourage the purchase of overpriced assets. Seeking protection from volatility through the use of financial products like Vix futures is an option but one that comes with the cost of carry. We believe careful construction of strategic asset allocation, active, tactical positioning, and disciplined rebalancing are the most cost-efficient ways to shield our clients from excess volatility, while not missing out on the return potential of markets. Time in the market is more important than timing the market.
Dan Scott
Location:
Zurich
Firm:
Vontobel
Job:
CIO wealth management
Charles-Henry Monchau
Volatility is on the rise. What investment tools are you using to take advantage of that? Have you added exposure to investments that will perform better in volatile markets?
Volatility is on the rise but we feel that a key indicator, the Vix index, hasn’t been moving as high as it should. This is because we are in a fundamentally-driven bear market where investors progressively adjust to tighter monetary conditions and lower economic growth. We haven’t seen the spike in volatility which usually characterises capitulation and a fear-driven selloff.
Generally, the progressive rise of volatility has been of one the main reasons why we have reduced risk in multi-asset portfolios.
At this stage, we aim to take advantage of the still reasonably-valued volatility to buy some equity market protection.
Hedge funds strategies such as CTAs and macro have been benefiting from the change in markets which started in March.
Charles-Henry Monchau
Location:
Geneva
Firm:
Syz Group
Job:
CIO
With inflation and interest rates on the rise, what is your growth outlook for the coming months? Do you think the risk of recession is growing?
As inflation is proving stickier than central banks hoped, they are hiking rates more quickly. It is only by destroying some demand that central banks can hope that inflation will ultimately come down. But the problem is that rate hikes are quite a blunt instrument, and therefore, we don’t know exactly how much those hikes will affect growth. For example, US housing market activity is already falling as a result of the sharp rise in mortgage rates.
The positive, however, is that we’re slowing down from a relatively strong starting point. Many households have saved during the Covid-related lockdowns and now want to spend some of those savings on travel and entertainment. The labour market is also very strong, some would say overheating. Therefore, we think the economy can slow down for some time before growth turns negative. This means we don’t foresee a US recession in 2022, but it becomes more of a risk in 2023.
As for the UK, we think growth will be negative in Q2, but not Q1 or Q3, fortunately, again avoiding a recession. Rising interest rates and high inflation are contributing to a significant cost-of-living crisis. We believe the risk of triggering a recession will keep the Bank of England from hiking as much as the Fed. We foresee ‘just’ 1% more rate hikes from the Bank of England compared with market expectations of 1.75% more hikes from here.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
Guillaume Menuet
Volatility is on the rise. What investment tools are you using to take advantage of that? Have you added exposure to investments that will perform better in volatile markets?
We have not added exposure but we continue to maintain a high allocation to quality stocks and bonds. In addition, we have a high allocation to the Dividend Aristocrats index, where firms are able to grow their dividends at a sustainable rate, despite volatility.
We have added US government and investment grade bonds to the portfolio, as these instruments/asset classes provide a high yield – given the recent widening in yields – with low credit and volatility risk.
Guillaume Menuet
Location:
London
Firm:
Citi
Job:
EMEA head, investment strategy and economics
With inflation and interest rates on the rise, what is your growth outlook for the coming months? Do you think the risk of recession is growing?
As inflation is proving stickier than central banks hoped, they are hiking rates more quickly. It is only by destroying some demand that central banks can hope that inflation will ultimately come down. But the problem is that rate hikes are quite a blunt instrument, and therefore, we don’t know exactly how much those hikes will affect growth. For example, US housing market activity is already falling as a result of the sharp rise in mortgage rates.
The positive, however, is that we’re slowing down from a relatively strong starting point. Many households have saved during the Covid-related lockdowns and now want to spend some of those savings on travel and entertainment. The labour market is also very strong, some would say overheating. Therefore, we think the economy can slow down for some time before growth turns negative. This means we don’t foresee a US recession in 2022, but it becomes more of a risk in 2023.
As for the UK, we think growth will be negative in Q2, but not Q1 or Q3, fortunately, again avoiding a recession. Rising interest rates and high inflation are contributing to a significant cost-of-living crisis. We believe the risk of triggering a recession will keep the Bank of England from hiking as much as the Fed. We foresee ‘just’ 1% more rate hikes from the Bank of England compared with market expectations of 1.75% more hikes from here.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
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Manpreet Gill
Location:
Dubai
Firm:
Standard Chartered
Job:
CIO EMEA
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Álvaro Manteca
Have you been surprised by value stocks’ lacklustre performance this year? How much of their last decade of underperformance, relative to growth stocks, do you expect them to recoup in coming years?
In an environment of high interest rates, the value investment style usually shows better relative performance than the growth style, so we are surprised by its poor performance. However, it has basically been a phenomenon of the US market, where investors’ doubts regarding the impact of monetary tightening on corporate profits have led them to bet on large, high-quality companies, which are not usually represented in the value investment style.
As for the value expectations for the next few years, it will depend on the form that the economic slowdown takes and the visibility regarding the economic cycle. In a soft-landing environment, like the one we expect, value should show better relative behaviour compared with growth.
Álvaro Manteca
Location:
Madrid
Firm:
BBVA
Job:
Cross-asset strategist
Have you been surprised by value stocks’ lacklustre performance this year? How much of their last decade of underperformance, relative to growth stocks, do you expect them to recoup in coming years?
We were bullish on US IT Stocks, but we were surprised by the extent of the underperformance of value. This was especially true in the first half of the year, where rates were still rising and the robustness of growth stocks was impressive.
We remain bullish on US IT stocks because of their significant earnings growth. We expect interest rates to fall next year, so value could continue to underperform.
Anja Hochberg
Location:
Zurich
Firm:
ZKB
Job:
Head of multi-asset solutions
Anja Hochberg
Have you been surprised by value stocks’ lacklustre performance this year? How much of their last decade of underperformance, relative to growth stocks, do you expect them to recoup in coming years?
This question goes beyond the last 10 years, even when we manage to agree on what constitutes ‘value’ or ‘growth’ – do you focus on price-to-book ratios, discount to intrinsic value or look at prospective earnings growth, for example?.
If markets are, indeed, mean-reverting, the relative return and relative valuation between the two camps suggest value has long-term upside. However, expectations about policy rates and the level of yields can also shape sentiment in the short term – growth stocks tend to have longer duration characteristics.
If real (long-term) interest rates remain elevated and economic momentum continues to surprise positively, this could boost the appeal of cyclical-value stocks and of some of the more defensive names which dominate value.
However, do not expect that mean-reversion to be clear-cut. Our top-down preferences are not exclusively for growth above value (or vice versa). Rather we continue to see the case for owning a mixture of sectors with cyclical and structural qualities.
Carlos Mejia
Location:
Zurich, Geneva
Firm:
Rothschild & Co
Job:
CIO
Carlos Mejia
Mark Haefele
Have you been surprised by value stocks’ lacklustre performance this year? How much of their last decade of underperformance, relative to growth stocks, do you expect them to recoup in coming years?
Historically, value stocks have tended to outperform when inflation is over 3% and when monetary policy is tight. Over the past year, the strong earnings rebound across some tech names has taken over the macro drivers (inflation and bond yields) at the global level. We had taken a more selective approach to this part of the market, so our performance in value was better than the broader indices. Going forward, performance depends on the capacity of value stocks to generate earnings growth. If we are in a soft landing and earnings do not fall sharply there is upside for value names, as selected in our universe.
Mark Haefele
Location:
Zurich
Firm:
UBS Wealth Management
Job:
CIO
Michael Strobaek
With a recession looming, investors are growing increasingly worried about liquidity. Which types of funds and assets are you watching closely and where do you think the biggest liquidity risks are now?
With recession risks rising and central banks tightening monetary conditions, overall liquidity in the economy has indeed been declining. However, we still have significant excess reserves in the system so an outright liquidity crunch seems unlikely. We have seen very little indication of liquidity stress and most liquidity indicators show no signs of impending problems. Trading and execution are orderly across asset classes and instruments. However, if liquidity stress did increase we would look at direct real estate funds and leveraged private equity vehicles first.
The biggest risk for market liquidity in our view would come from leveraged sectors and the direct real estate market. If bond yields and credit spreads were to rise too fast, these segments could come under pressure and might suffer mass withdrawals of investors. Such a development would be closely monitored by central banks and would only occur if there was a steep recession which is currently not our base case. Particularly in real estate, the situation is not comparable to the subprime crisis as most households in the US have fixed-rate mortgages at the moment and will only feel the impact of interest rate increases with a substantial delay.
In an ad-hoc meeting on 17 March 2022, the Credit Suisse investment committee (IC) decided to move equities back to a tactical overweight position, as several developments gave it reason to believe that equities have further upside potential in the near term. First, in its recent meeting, the Federal Open Market Committee (FOMC) transparently laid out its revised economic and policy outlook. The positive market reaction to the FOMC’s deliberations suggests markets have had enough time to digest the changed economic outlook. Second, and the IC would stress the high uncertainty with regard to developments in Ukraine, glimmers of hope have surfaced, as negotiations for a ceasefire are hitting the news channels. Moreover, oil prices and even agricultural prices have started to retreat. In our view, this has increased the odds that the stagflationary shock due to the sanctions on Russia might remain contained, which would allow the global economy, including Europe, to stay on a solid growth path.
Michael Strobaek
‘Greenium’ and ‘greenflation’ defined sustainable investing in 2021. Which sectors have you witnessed these two phenomena in and how are they impacting your allocations?
It is not surprising that the green/climate transition will increase costs in certain areas of the economy. For example, we are convinced that, over time, the price of carbon emissions must equal the cost of removing it from the atmosphere. Technology will inevitably reduce the cost of carbon capture, but it will take time and the equilibrium price is likely to be higher than before.
Despite these headwinds, we remain confident that the commitment from both investors and policymakers to the green transition will continue to drive the momentum in fundamentals as well as flows into sustainable investments. Our portfolios are increasingly focused on companies operating with or transitioning towards more climate-friendly business models. We have not entirely removed – or allocated to – certain sectors, as we believe all industries need to adjust for the sustainable transition to be a success.
Søren Funch Adamsen
Location:
Copenhagen
Firm:
Danske Bank
Job:
Head of portfolio construction
Location:
Zurich
Firm:
Credit Suisse
Job:
Global CIO
Richard de Groot
Have you been surprised by value stocks’ lacklustre performance this year? How much of their last decade of underperformance, relative to growth stocks, do you expect them to recoup in coming years?
I am more surprised by the strong outperformance of growth above everything else and then particularly the seven stocks driving the US market. For the coming year, where we expect growth will be below par and where we expect interest rates to fall further, I do not foresee a strong recovery in value sectors. Lower rates tend to be negative for the financials sector and low growth will keep upside for the energy sector limited. Both are important value sectors.
Richard de Groot
Locations:
Amsterdam
Firm:
ABN Amro
Job:
Global head of investment centre
Yves Bonzon
Have you been surprised by value stocks’ lacklustre performance this year? How much of their last decade of underperformance, relative to growth stocks, do you expect them to recoup in coming years?
The massive reversal of growth versus value from February onwards was somewhat unexpected, as the opportunities for both styles were quite similar at the beginning of the year. However, the problems surrounding the US regional banks as well as Credit Suisse, and the euphoria around AI were powerful enough catalysts for growth to outperform strongly.
In our view, the outlook for both styles is more balanced at this point in time, as the important value sectors (financials and commodities) are likely to record sustainably higher profits and margins in light of the turnaround in interest rates and inflation.
In the longer term, we believe that mean reversion strategies may not come to fruition within a meaningful time frame, i.e. within a client’s investment horizon, and so we view most of these strategies as structurally less suitable. This is not to say they cannot be profitable over brief periods, but as business models will continue to face disruptions driven by new technologies, a portfolio should strategically be exposed to segments that benefit from structural tailwinds and do not revert to their long-running mean.
Yves Bonzon
Location:
Zurich
Firm:
Julius Baer
Job:
CIO
Where is the sweet spot in fixed income markets right now?
In mid-October, we initiated a tactical overweight call on government bonds as the US 10-year hit 5%. This implies long-term real GDP growth of 2% and long-term inflation rates at 3%. While the 10-year bonds can overshoot this level, the level of yield seems attractive enough.
With economic surprises surprising on the downside, the Fed pausing and extreme short positioning by hedge funds, the outlook was supportive enough to move tactically overweight on rates in the short to medium term.
What about the long-term outlook? The supply issue is likely to remain a headwind for bond markets. The US Treasury bet issuance should amount to $2.4tn next year at a time when part of the demand coming from China, Japan or Saudi is waning. Individual investors are likely to require a substantial term premium before investing in US Treasuries.
In the meantime, we continue to like the belly (5-10-year) of the curve.
Charles-Henry Monchau
Location:
Geneva
Firm:
Syz Group
Job:
CIO
With inflation and interest rates on the rise, what is your growth outlook for the coming months? Do you think the risk of recession is growing?
As inflation is proving stickier than central banks hoped, they are hiking rates more quickly. It is only by destroying some demand that central banks can hope that inflation will ultimately come down. But the problem is that rate hikes are quite a blunt instrument, and therefore, we don’t know exactly how much those hikes will affect growth. For example, US housing market activity is already falling as a result of the sharp rise in mortgage rates.
The positive, however, is that we’re slowing down from a relatively strong starting point. Many households have saved during the Covid-related lockdowns and now want to spend some of those savings on travel and entertainment. The labour market is also very strong, some would say overheating. Therefore, we think the economy can slow down for some time before growth turns negative. This means we don’t foresee a US recession in 2022, but it becomes more of a risk in 2023.
As for the UK, we think growth will be negative in Q2, but not Q1 or Q3, fortunately, again avoiding a recession. Rising interest rates and high inflation are contributing to a significant cost-of-living crisis. We believe the risk of triggering a recession will keep the Bank of England from hiking as much as the Fed. We foresee ‘just’ 1% more rate hikes from the Bank of England compared with market expectations of 1.75% more hikes from here.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
Charles-Henry Monchau
What are the biggest risks your portfolios face going into 2023 and have you hedged portfolios against these threats?
The main risks our portfolios face next year include a deeper recession than the one currently forecasted by our team. We have hedged for this through allocating to gold in our portfolios. Inflation could also become more entrenched than initially anticipated.
On top of this, the Federal Reserve may pursue a tighter policy than the market expects. Currently, we forecast a terminal rate of around 4.75%-5.00%
Other risks include China not recovering quickly enough because of inadequate support for its property market and also the implementation of its zero Covid policy becoming more extreme.
Finally, geopolitical risks could intensify, such as the war in Ukraine, Brexit negotiations and a US-China trade war.
With all of the above in mind, we are hedging our portfolio by being slightly underweight equities and overweighting short-dated US Treasury assets.
Guillaume Menuet
Location:
London
Firm:
Citi
Job:
EMEA head, investment strategy and economics
With inflation and interest rates on the rise, what is your growth outlook for the coming months? Do you think the risk of recession is growing?
As inflation is proving stickier than central banks hoped, they are hiking rates more quickly. It is only by destroying some demand that central banks can hope that inflation will ultimately come down. But the problem is that rate hikes are quite a blunt instrument, and therefore, we don’t know exactly how much those hikes will affect growth. For example, US housing market activity is already falling as a result of the sharp rise in mortgage rates.
The positive, however, is that we’re slowing down from a relatively strong starting point. Many households have saved during the Covid-related lockdowns and now want to spend some of those savings on travel and entertainment. The labour market is also very strong, some would say overheating. Therefore, we think the economy can slow down for some time before growth turns negative. This means we don’t foresee a US recession in 2022, but it becomes more of a risk in 2023.
As for the UK, we think growth will be negative in Q2, but not Q1 or Q3, fortunately, again avoiding a recession. Rising interest rates and high inflation are contributing to a significant cost-of-living crisis. We believe the risk of triggering a recession will keep the Bank of England from hiking as much as the Fed. We foresee ‘just’ 1% more rate hikes from the Bank of England compared with market expectations of 1.75% more hikes from here.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
Guillaume Menuet
Manuela D’Onofrio
Where is the sweet spot in fixed income markets right now?
Our preference is for high-quality bonds such as Euro government and corporate investment grade bonds, given the weakening growth and the cooling inflation.
Key interest rates have peaked, and major central banks are now on hold. We expect the Fed and ECB, despite their hawkish rhetoric, to start cutting rates around mid-2024.
Manuela D’Onofrio
Location:
Milan
Firm:
UniCredit
Job:
Head of global investment strategy, private banking division
Stéphane Monier
Financial stocks in Europe and the US have come under pressure. What is your view of financials as an asset class and where do you see the biggest potential weaknesses within the sector?
We remain cautious on US banks, as recent stress will continue to weigh on the sector in an environment of restrictive financial conditions. The business model of all banks requires confidence, and the fact that US regional banks and Credit Suisse collapsed so quickly, demonstrates how fast a bank run can materialise. Markets will pay particular attention to small- and mid-sized banks’ asset/liability management. Furthermore, as clients switch deposits from smaller institutions to the perceived safety of larger US banks, small and medium-sized banks may have to offer higher interest rates to retain depositors, or seek other, more expensive sources of funding. Recent events also make it likely that existing capital requirements for large banks will also be extended to every US lender, further reducing profitability. In light of the hit to earnings, banks are in turn likely to tighten lending and credit standards further, increasing the slowdown in consumer and corporate borrowing. This would be both disinflationary and a brake on economic growth.
More broadly, if financial stress remains contained, there are potential opportunities in large and well capitalised European and Japanese banks. We expect higher interest rates to provide a boost to their earnings, offsetting near-term downside risks from rising loan provisions as growth slows. Longer term, we also see secular tailwinds for exchange platforms and payment companies, which officially became part of the financial sector this month.
Stéphane Monier
Location:
Geneva
Firm:
Lombard Odier Private Bank
Job:
CIO
Cesar Perez Ruiz
The EU has recently unveiled its first green bonds standard. Do you plan to add more green bonds to portfolios in the coming weeks, and what are the potential challenges you see within this space?
We welcome the proposal, as it goes in the direction of standardising a field that is otherwise prone to greenwashing. It also includes a standardised template for issuers of other environmentally sustainable bonds, which may facilitate implementation.
However, there is still work to do. The regulation fails to make mandatory requirements around the Principal Adverse Impact and EU member states still have to formally approve the regulation, which will apply one year after its entry into force.
The market has moved from niche to mainstream in the past couple of years, but was risking momentum given uncertainty on standards. This regulation will support further expansion. Overall, one day the question will be reversed: why are some issuers not declaring in advance their use of proceeds?
Cesar Perez Ruiz
Location:
Geneva
Firm:
Pictet Wealth Management
Job:
CIO
Corporate sustainability reporting in the EU is being finalised. What do you think about the main aspects of the framework so far, are there any notable omissions? When passed, how will it affect your daily work?
The Corporate Sustainability Reporting Directive (CSRD) should be interpreted as a disclosure requirement designed to help financial market participants meet their own obligations while also fostering a dialogue on sustainability between investors and issuers. The CSRD applies to companies whose debt or equity securities are listed on a regulated EU market, regardless of whether it is an EU or non-EU company. As such, it has a global impact as a common framework removes complexity and provides more transparency.
At the same time, CSRD also includes small and medium-sized enterprises (SMEs), which represent about 90% of businesses and more than 50% of employment worldwide. In the absence of advanced discussion on SME transition, CSRD could shed light on an important but neglected area.
For the financial sector, these developments represent important extensions to their range of work. Basically, it is about talking about the double materiality of corporate activities and incorporating this information into our assessment of the return/risk profile of different economic activities
Christian Nolting
Location:
Frankfurt
Firm:
Deutsche Bank
Job:
Global CIO and head of CIO and investment solutions
Christian Nolting
David Storm
Steady M&A activity means there are fewer fund providers every year. Does it shrink your asset allocation options and do you find this challenging? Do you expect the consolidation to accelerate next year?
Consolidation will continue across the industry as pricing and regulatory pressures make it harder for all asset managers, particularly mid-size firms. This reduces choice in asset management but the toolkit for investors should never just be constrained to funds. This is especially true in an environment where we expect to see greater dispersion, a need for more dynamic risk management and for real diversification.
An investor’s approach has to evolve as markets evolve. Structured products make a lot of sense in this environment, offering ways to implement investment ideas that are hard to match in terms of risk/return, pricing and ability to customise. We’re also seeing more scope for private assets to play a role in all investor portfolios. To provide that, you need a larger investment team and as a result, I think consolidation across every part of the industry is inevitable.
David Storm
Location:
London
Firm:
RBC Wealth Management
Job:
CIO
Dan Scott
The EU has recently unveiled its first green bonds standard. Do you plan to add more green bonds to portfolios in the coming weeks, and what are the potential challenges you see within this space?
We have been looking into green, social, and sustainability-linked bonds for many years. This new standard certainly helps us to align our investments closer with the EU Taxonomy. In a multi-asset context, these bonds will become a cornerstone of any strategy that seeks to increase the percentage of investments with an environmental objective.
Potential challenges within the green bonds space include the quality and heterogeneity of reporting metrics, transparency within the segment, as well as ambiguity over how ‘green’ the respective green bond really is.
Dan Scott
Location:
Zurich
Firm:
Vontobel
Job:
Head of Vontobel Multi Asset
Steady M&A activity means there are fewer fund providers every year. Does this shrink your asset allocation options and do you find this challenging? Do you expect consolidation to accelerate next year?
This is not a problem in the short to medium term as there are still plenty of different fund providers. We also need to emphasize the fact that even if a fund provider buys one or several smaller firms it does not mean that the number of underlying strategies is shrinking. With more and more regulation the importance of scale is increasing so it might also be a way to preserve a plentiful supply of different styles and strategies which can thrive under fewer but larger umbrellas.
Johann Guggi
Location:
Stockholm
Firm:
Handelsbanken
Job:
CIO asset allocation
Johann Guggi
Have we reached peak pessimism in the markets? Are there any sectors that are looking too cheap to ignore now?
Investor sentiment has changed from being very negative at the beginning of the year to rather optimistic recently. The main reason is that US recession fears have faded and most investors are now embracing the idea of a soft landing or even no landing of the US economy. Therefore, investors see bad news as good news as it brings the end of interest rate hikes by central banks closer. But this assessment could change quickly if growth fears were to intensify towards the end of the year.
There are some areas in the market which are looking cheap, like small caps in the US and emerging markets. However, we do not think that these are compelling investments, because in a market downturn high-beta stocks usually underperform. One neglected area in the equity market is defensive sectors like consumer staples. Also, healthcare looks attractive in such an environment where nominal growth will be more difficult to achieve.
Outside of equities we see bonds as being attractive at current levels. Inflation-protected bonds offer a decent real yield and might do really well in a growth slowdown phase. We also see attractive risk-adjusted returns from contingent convertible bonds in the banking sector.
Philipp Baertschi
Location:
Zurich
Firm:
J Safra Sarasin
Job:
CIO
Philipp Baertschi
How big of a share of private markets do you have in an average client portfolio? How have mixed asset portfolios with private markets performed compared with traditional 60/40 portfolios in the last year?
Our average client portfolio exposure to private markets is below 10%. We used to diversify exposure through a selection of different strategies and counterparties as well as across different asset classes such as private equity, private debt and infrastructure.
In portfolio construction, we believe in the benefits of diversification, so we are gradually augmenting exposure to private assets. We also take into account some switching effects due to higher bond yields from the current new normal environment. Last year we saw a strong preference for income-based strategies from our clients. As a result, private debt or infrastructure debt to support the energy transition could be effective picks.
In terms of performance, however, it isn’t easy to compare a mixed portfolio invested into traditional liquid asset classes with daily mark-to-market and enlarged portfolios which include private assets. This is because it depends on private asset vintage and time horizon. That said, looking at various vintages within our portfolios, we have seen a better return contribution per risk unit from portfolios including private asset investments than pure traditional ones.
Renato Zaffuto
Location:
London
Firm:
Fideuram Asset Management
Job:
London branch manager
Fahad Kamal
Have you increased your allocation to private debt this year and what are your favourite fund picks in the space? Are there any areas that are starting to look alarming in private debt?
In our view, the current climate in financial markets raises concerns about private debt exposure given its typically limited transparency, particularly in the high yield space. The lack of transparency can make it difficult to accurately assess the underlying risks associated with these investments, which have become more critical amid rising default rates in a slowing global economy.
Another pressing concern for private clients is the limited liquidity of many private debt strategies. Uncertainties still abound as markets anticipate the full impact of the aggregate monetary tightening action over the past 15 months, and diversification and flexibility remain key aspects of any investment strategy. In this context, effective liquidity management remains crucial to avoid potentially locked-in positions during times of market stress. With this in mind, we prefer a mix of developed government bonds and high quality, publicly traded credit exposure.
* Please note that Kleinwort Hambros and Société Générale Private Bank do not always align on asset allocation calls
Fahad Kamal
Location:
London
Firm:
Kleinwort Hambros
(SocGen Group*)
Job:
CIO
Fredrik Öberg
Vincent Manuel
Private markets have been growing rapidly in the last couple of years, but a lot of the premium has already been captured. Where do you still see value within private markets and are there any areas that are starting to look too risky?
Private equity is facing the same challenges as listed equity but will probably run up against them a little later.
The three segments of the market that are more at risk are venture capital, private debt and large-cap leveraged buyouts. Liquidity could also be an issue for funds which have been aggressive in the development and ‘retailisation’ of their investor base. However, we still see strong value in middle-market private equity funds as they tend to invest in companies and sectors with stronger-than-average pricing power. For example, private equity has invested massively in healthcare over the last few years.
In addition, investing today in private assets should allow investors to benefit from the opportunities offered through public-to-private deals after a strong de-rating of public equities. Private equity returns are also higher than average during crisis years
We see attractive investment opportunities in infrastructure, particularly in the field of energy transition. We are also looking into distressed debt to benefit from the rise in restructuring stories.
Vincent Manuel
Location:
Paris
Firm:
CA Indosuez
Job:
CIO
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Fredrik Öberg
Location:
Stockholm
Firm:
SEB Private Banking
Job:
CIO, investment strategy
Juan de Dios Sanchez-Roselly
Willem Sels
Fixed income has been talked up a lot this year, but flows into European cross-border funds have been much smaller than those into money market or even equity strategies. What is holding investors back? Which areas of fixed income do you find attractive right now?
Both money markets and fixed income will be the main beneficiaries when interest rates normalise. However, mark-to-market fixed income has been hit hard by the reset. When investors suffer significant losses, they tend to have recency bias, be loss-averse, and avoid increasing positions in long-term fixed income. Flows tend to lag in reaction to fundamentals; so, we make investment recommendations to try to educate clients about the shift in absolute interest rates to offset that trend.
Investors are finally getting a good deal in fixed income both on absolute levels and in relation to falling inflation. This is raising fixed income’s appeal as an income-generating asset and risk-mitigating building block in balanced portfolios after much of it was lost. Investment grade corporates are enjoying the best mix of current yields and spreads relative to risk. With markets expecting US inflation to fall near 3% by the end of the year, investors can obtain yields close to 6% without facing high levels of credit risk.
Juan de Dios Sanchez-Roselly
Location:
Madrid
Firm:
Santander Private Banking
Job:
Global CIO
Thomas Wille
What are the biggest risks your portfolios face going into 2023 and have you hedged portfolios against these threats?
The biggest challenge regarding risk in 2023 is to evaluate whether you are adequately compensated for the risks taken. We believe we will have to take risks in the coming year in order to generate a positive return. We expect the correlation between equities and bonds to return to normal. A risk for portfolios that should not be underestimated is if the core inflation rate remains too high for too long, so increasing the probability of central banks overtightening and leading to a deep recession.
For now, we have hedged our portfolios to the extent that we remain underweighted in risky assets. Within the fixed income quota, we have focused on short-term government bonds and high-quality investment grade bonds. Liquid alternative investments and hedge funds are part of the portfolio in this phase. Another risk during the year is to have too little ‘risk’ in the portfolio after the turning point of monetary policy and the core inflation rate. In order to reduce the timing, we recommend a step-by-step build-up in both equities and bonds. A peak in the US dollar as well as a rally at the long end of the yield curves and a fall in real yields will mark a possible turning point.
Thomas Wille
Location:
Zurich
Firm:
LGT
Job:
Head of research and strategy
Guillaume Menuet
Guillaume Menuet
Have we reached peak pessimism in the markets? Are there any sectors that are looking too cheap to ignore now?
Equity markets have rallied noticeably so far in 2023, even if there are clear differences in performance between regions. With the current narrative of central banks keeping rates higher for longer, we suspect that gains to date could be vulnerable going into the year-end, given rather elevated valuations.
Pessimism could therefore increase in the coming months if there were to be 1) worries about corporate profitability from more challenging top-line perspectives as global GDP growth moderates; and/or 2) the rise in intermediate costs does not soften more materially.
Guillaume Menuet
Location:
London
Firm:
Citi
Job:
EMEA head, investment strategy and economics
With inflation and interest rates on the rise, what is your growth outlook for the coming months? Do you think the risk of recession is growing?
As inflation is proving stickier than central banks hoped, they are hiking rates more quickly. It is only by destroying some demand that central banks can hope that inflation will ultimately come down. But the problem is that rate hikes are quite a blunt instrument, and therefore, we don’t know exactly how much those hikes will affect growth. For example, US housing market activity is already falling as a result of the sharp rise in mortgage rates.
The positive, however, is that we’re slowing down from a relatively strong starting point. Many households have saved during the Covid-related lockdowns and now want to spend some of those savings on travel and entertainment. The labour market is also very strong, some would say overheating. Therefore, we think the economy can slow down for some time before growth turns negative. This means we don’t foresee a US recession in 2022, but it becomes more of a risk in 2023.
As for the UK, we think growth will be negative in Q2, but not Q1 or Q3, fortunately, again avoiding a recession. Rising interest rates and high inflation are contributing to a significant cost-of-living crisis. We believe the risk of triggering a recession will keep the Bank of England from hiking as much as the Fed. We foresee ‘just’ 1% more rate hikes from the Bank of England compared with market expectations of 1.75% more hikes from here.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
Manpreet Gill
Where is the sweet spot in fixed income markets right now?
We see the sweet spot sitting in long duration G3 government bonds. Today’s level of bond yields means that the bar for adding further credit risk is high, causing us to be quite selective and to maintain a preference for higher-quality bonds over high yield or emerging market bonds.
Markets are offering investors a still-open window to lock in attractive yields, which we prefer to do for as long as possible. Our view of slowing US economic growth means that we also see room for bond yields to fall further. Together, these cause us to favour duration rather than taking on excessive credit risk today.
Manpreet Gill
Location:
Dubai
Firm:
Standard Chartered
Job:
CIO EMEA
Edmund Shing
Following recent market volatility, do you think the Fed will stick to its hiking programme or is it likely to pause/cut sooner? What does this mean for your portfolios?
The Fed is likely to pause, which could be positive news for our risk-on stance in portfolios, where we are overweight equities and overweight investment grade credit. The boost could come from the transmission mechanism of lower long-term real interest rates and lower bond volatility, as inflation falls quickly as credit conditions tighten in the wake of recent banking stress.
Edmund Shing
Location:
Paris
Firm:
BNP Paribas
Wealth Management
Job:
CIO
Fredrik Öberg
Following recent market volatility, do you think the Fed will stick to its hiking programme or is it likely to pause/cut sooner? What does this mean for your portfolios?
Inflation data for the US has been moving in the right direction since last autumn and the Fed’s hikes seem to be lagging behind and, as usual, are creating problems when interest rate rises bite into both the capital market and the real economy, as well as the financial system. My expectation is that the Fed will soften but it has no reason to signal this.
Should growth hold up more than expected, there will be room, and a need, for central banks to pursue restrictive policies for longer. This means that in the event of economic weakness, inflation will moderate and then central banks will ease the brakes and in case of strength, strength will compensate for the fact that key interest rates will remain high for a longer period of time.
Both of these scenarios suggest that investors should not be too risk-averse, and we are not. However, we would change our stance if the economy became too weak or if interest rate rises created more victims in the financial system so that systemic risks increase.
Fredrik Öberg
Location:
Stockholm
Firm:
SEB Private Banking
Job:
CIO, investment strategy
Guillaume Menuet
Financial stocks in Europe and the US have come under pressure. What is your view of financials as an asset class and where do you see potential weaknesses within the sector?
We continue to believe that for Europe and the US, financials have strong fundamentals. However, some risks are emerging, such as the higher interest rate environment, which has caused lending conditions to tighten.
Valuations have significantly re-rated for the sector, especially in Europe where financials are now trading near their 15-year PB average.
Attractive valuations and healthy balance sheets among the majors in the US have been counterbalanced by a hawkish Fed, rising odds of a recession, recent regional bank failures, negative 2022 stock and bond returns, declining loan volumes, and a reduction in deal-making.
If our recession call is correct, looming job losses should have implications for credit card usage growth and defaults. Delinquency rates on credit cards and consumer loans in the fourth quarter neared or reached levels they were at before the pandemic and the related stimulus that relieved debt burdens during lockdowns.
We’ll be watching as banks add to their loan loss reserves in the months ahead. Banks have not performed as they normally do relative to changes in bond yields and over time, we’d expect some convergence when the clouds eventually clear.
We are currently neutral on global financials.
Guillaume Menuet
Location:
London
Firm:
Citi
Job:
EMEA head, investment strategy and economics
Cesar Perez Ruiz
Dan Scott
Where is the sweet spot in fixed income markets right now?
When it comes to fixed income, we continue to find government bonds more attractive, hence our overweight in the asset class. We believe that government bond yields, both developed and emerging, at current levels are attractive. In a decelerating economy, inflation will take a step back – and central banks will come to the rescue. For the 10-year we see yields coming in towards 3%.
Beyond that, we currently see risks as being asymmetric. The payoff for a 100bps yield move in one years’ time – assuming a parallel yield curve shift – is asymmetrical. If the 10-year yield were to rally, with yields declining 100 bps, it would return 12%, while for a 100bps selloff the 10-year would lose a bit over 2.5%. If the two-year yield were to sell off, with yields climbing 100 bps, it would still return 4% and for a 100-bps rally it would return just shy of 6%.
Dan Scott
Location:
Zurich
Firm:
Vontobel
Job:
Head of Vontobel Multi Asset
Where is the sweet spot in fixed income markets right now?
We are happy to book the attractive income provided by positive real yields on Treasuries of up to seven years duration. We are therefore overweight US Treasuries as the US economy could experience a mild recession in early 2024.
In the footsteps of our long duration position on US yield, and in recognition of the European bond market's sensitivity to events across the Atlantic, we are overweight on core euro government bonds (up to 10-year maturity).
Yields now at around 6% continue to make US investment-grade bonds look attractive. But lower-quality, non-investment-grade bonds and loans are more vulnerable in the current rate environment, as the rise in yields in default rates this year shows. With this in mind, we favour high-quality US corporate bonds (up to five-year maturity) as well as European investment grade bonds (up to seven years). But rising funding costs are placing pressure on the low-quality, non-investment-grade part of the market, on which we remain underweight.
Elsewhere, we expect local-currency emerging market bonds to produce total returns in the high single digits next year, so we remain overweight this asset class.
Cesar Perez Ruiz
Location:
Geneva
Firm:
Pictet Wealth Management
Job:
CIO
Fixed income has been talked up a lot this year, but flows into European cross-border funds have been much smaller than those into money market or even equity strategies. What is holding investors back? Which areas of fixed income do you find attractive right now?
In our view, a number of factors are holding investors back – firstly, the obvious appeal of risk-free cash rates in money market funds or term deposits in dollars, euros or sterling. These are, after all, are the highest such cash interest rates on offer for 14+ years.
Secondly, the fact that longer-term bond yields are still rising, which is capping total returns as some of the higher coupon benefit is disappearing in the form of lower bond prices.
Thirdly, in the eurozone, sovereign bond yields are generally not as attractive as in the US or UK, outside of perhaps Italian BTPs.
Ultimately, once central bank rates have definitively peaked and as lower inflation rates help bond prices recover, we should see greater flows into bonds.
We like US and Euro investment grade bonds, US Treasury inflation-protected securities and US agency bonds.
Edmund Shing
Location:
Paris
Firm:
BNP Paribas
Wealth Management
Job:
CIO
With interest rates on the rise, fixed income is featuring more prominently in portfolios again. Do you think the 60/40 approach is back, and what’s your view on fixed versus floating-rate bonds?
The traditional 60/40 portfolio had an exceptionally bad year in 2022, with a decline similar to the depths of the global financial crisis in 2008. The rebound in fixed income in 2023 reflects the markets’ change in sentiment and investors’ cautious outlook. Therefore, a multi-asset portfolio remains relevant for balanced investors who want to protect their downside without losing cyclicality. With rates in the US and Europe close to peaking and inflation declining, floating-rate bonds are likely to become less attractive for investors looking to profit from rising coupons.
Moz Afzal
Location:
London
Firm:
EFG Asset Management
Job:
CIO
David Storm
Willem Sels
Manpreet Gill
Have you increased your allocation to private debt this year and what are your favourite fund picks in the space? Are there any areas that are starting to look alarming in private debt?
We have not made any changes to our private debt allocations. However, we have continued to emphasise the value of owning private debt as part of an allocation to private assets more broadly within a well-diversified foundation portfolio. 2022’s experience was an illustration of its diversification benefits. Within private assets, we are more comfortable with private debt and infrastructure relative to other private assets.
Manpreet Gill
Location:
Dubai
Firm:
Standard Chartered
Job:
CIO EMEA
There are more distressed debt issuers coming to the market now that interest rates are higher. Which sectors and companies provide the best of these opportunities right now and what could be the next Thames Water to look out for?
In general, we do not advise on distressed debt as the risk of permanent capital impairment for our clients can be unpalatable.
That said, there are select higher yield opportunities within the credit market. For example, we like corporate hybrids where the issuing entities are generally large, investment grade, market leading companies, often operating in regulated sectors, though the specific bond issue is subordinated and may be high yield. We also see opportunities in some ‘rising star’ high yield corporates whose balance sheets have benefited from the continued bounce-back in post-pandemic demand, such as UK airports, other industrials and supermarkets. At this point in the cycle, we prefer to avoid those sectors where we see interest-rate sensitive business models, high leverage, a sizeable capex requirement and a vulnerability to a pullback in consumer spending. This would include some areas of the commercial real estate market, discretionary retail and to a certain extent, utilities.
We believe clients can exploit distressed opportunities through specialised private credit managers, who can determine the right timing and do very solid due diligence.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
Alexandre Drabowicz
How big of a share of private markets do you have in an average client portfolio? How have mixed asset portfolios with private markets performed compared with traditional 60/40 portfolios in the last year?
We typically allocate between 5% and 10% of private market assets to standard portfolio solutions as part of an allocation to alternatives that ranges from 25% to 35%, depending on the risk profile.
It is fair to say though that clients’ allocation can be much higher than this if their liquidity requirements are limited and they are eager to capture the illiquidity premium. There has been very significant interest in private credit in particular in recent quarters, due to its floating rate nature, and the supply /demand imbalance, which has created attractive conditions for investors.
In terms of the performance impact of private equity on portfolios, one implication of the higher rate environment is the widening of the performance gap between different private equity managers – between winners and losers.
For more recently closed funds, the gap between the top and bottom decile has never been wider. Funds from 2021 and 2022 vintages are still in their relative infancy, but this dispersion in performance is to be expected. However, it does highlight the importance of manager selection, and choosing the right manager. We think tightening lending conditions and more attractive valuations will create many opportunities for managers, and this should increase investment activity in H2 2024 and into 2025.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
There are more distressed debt issuers coming to the market now that interest rates are higher. Which sectors and companies provide the best of these opportunities right now and what could be the next Thames Water to look out for?
The distressed ratio (bonds trading below 60) in Europe currently stands at 4.9%, the highest since the peak during the pandemic hype in 2Q 2020 when it reached 7.2%. In the US, the distressed ratio is also at 4.9%, but it is significantly lower than the peak of 20.1% observed in March 2020. Interestingly, the ICE BofA US high yield index is at a very tight level with an option-adjusted spread currently just below 400 basis points. This indicates a rich valuation for the segment but also a highly bifurcated market, with investors displaying low tolerance for companies carrying high idiosyncratic risks.
In this context, heightened selectivity is vital. Idiosyncratic risks are rising, while many CCC-rated bonds are still not able to re-enter the market. Considering the expected higher-for-longer scenario, we do not believe it is the right time to add credit risk to highly leveraged companies, but very selective opportunities are worth exploring.
Alexandre Drabowicz
Location:
Paris
Firm:
Indosuez Wealth Management
Job:
CIO
Artifical intelligence has been a hot topic this year. How are you accessing the theme and do you think AI will have an inflationary or disinflationary effect?
The year-to-date rally in US technology shares has mainly been led by developments in the AI industry. We are optimistic about AI as it will provide huge benefits in the coming few years, such as boosting productivity, enhancing efficiency and also increasing economic growth. At the moment, the equity rally and valuation impact has only been concentrated on a few developers of AI infrastructure. However, other developers of AI technology have yet to experience this boost. This impact will take time, but we believe these firms have significant growth and valuation potential over the very long term.
Guillaume Menuet
Location:
London
Firm:
Citi
Job:
EMEA head, investment strategy and economics
Guillaume Menuet
Clémentine Gallès
Have you been surprised by value stocks’ lacklustre performance this year? How much of their last decade of underperformance, relative to growth stocks, do you expect them to recoup in coming years?
We were not completely surprised by US value underperformance as we overweighted US growth for most of the year. Indeed, we saw the notable resilience of the US economy that mainly benefited a growth style. Moreover, we were quick to catch on to the AI market, with a clear call on the thematic.
We recently moved to a blended portfolio, between growth and value. The slowing economy and a moderate decrease in interest rates may benefit a return of the value style.
Clémentine Gallès
Location:
Paris
Firm:
Société Générale Private Banking
Job:
Chief economist and strategist
Have you been surprised by value stocks’ lacklustre performance this year? How much of their last decade of underperformance, relative to growth stocks, do you expect them to recoup in coming years?
Value stock underperformance was not surprising given the expectation of slowing economic growth and the segment’s exposure to more cyclical areas of the global economy that translated into the weak earnings backdrop over the past year. However, the magnitude of the underperformance was surprising in light of the unexpected price/earnings re-rating of growth stocks despite the rising yield environment throughout 2023.
Looking at the long-cycle underperformance of the value style relative to growth, only 20% can be attributed to the premium earnings delivered by growth stocks over the last decade. Instead, the bulk of the underperformance can be attributed to the re-rating of growth stocks from 20 times earnings pre-pandemic to an average of 26 times over the past year.
We do not expect this valuation re-rating to continue, with growth stocks’ valuations not only decoupling from the interest rate cycle in 2023, but also with bonds having reached at least a pause in their three-year bear market. However, drivers to an absolute valuation compression appear absent looking into the new year.
Instead, investors should look for an earnings re-acceleration among value names to allow cyclically low valuations to rebound and begin to more durably close the decade-long underperformance of the value style relative to growth.
With early signs emerging of industrial spending and fiscal momentum growing, especially associated with the climate transition, some tailwinds for such an earnings re-acceleration are taking shape. However, a broadening of such evidence across geographies and sectors is needed for more broad-based earnings re-acceleration and value outperformance.
Norman Villamin
Location:
Zurich
Firm:
Union Bancaire Privée
Job:
CIO wealth management
Fixed income has been talked up a lot this year, but flows into European cross-border funds have been much smaller than those into money market or even equity strategies. What is holding investors back? Which areas of fixed income do you find attractive right now?
This year, investors have been drawn more towards high quality securities, such as sovereigns and investment grade corporates, than mutual funds. Buy-and-hold in short maturities has been the favourite type of investment in a rising interest rate and inverted yield curve environment.
Central banks are maintaining a tightening stance to cool down inflation expectations, and as a result, low duration and target-date-based strategies are the most attractive in the investment grade space.
Renato Zaffuto
Location:
London
Firm:
Fideuram Asset Management
Job:
London branch manager
Renato Zaffuto
Gerald Moser
Fixed income has been talked up a lot this year, but flows into European cross-border funds have been much smaller than those into money market or even equity strategies. What is holding investors back? Which areas of fixed income do you find attractive right now?
History has shown that a cycle of rate hikes often leads to a recession that is only recognised as such in retrospect and is then accompanied by sharp rate cuts. In our view, this argues in favour of increasing the duration of an investment portfolio at the end of a rate hike cycle to capture an attractive carry without taking on too much credit risk at the same time.
Given the sharp rise in real interest rates, we prefer US dollar bonds, where we favour extended duration over traditional US Treasuries or high quality corporate bonds.
Gerald Moser
Location:
Vaduz
Firm:
LGT
Job:
Head of investment services EMEA
Christian Abuide
Have we reached peak pessimism in the markets? Are there any sectors that are looking too cheap to ignore now?
We would not characterise the current situation as ‘peak pessimism’. Gauges of investor sentiment and positioning are broadly neutral, down from more overtly bullish levels in July. Major equity indices are still up between 5-10% year-to-date, volatility is low, and valuations are broadly in line with long-term averages.
While global growth is weakening, the US economy has been surprisingly strong and the case for a soft landing looks stronger. In a situation where “good news is bad news”, pessimism may be linked to markets’ growing acceptance that US interest rates will be higher for longer, with fewer cuts expected in 2024 and an extended plateau of restrictive policy. Headwinds to growth are also rising, including the fact that oil prices likely to remain around $90 a barrel. Sectoral divergences in the US economy, as well as differing estimates of its current growth rate from different regional Federal Reserves, make the outlook unusually hard to read.
With this in mind, we retain a broadly neutral exposure across equities and continue to look for companies that are better able to withstand lower growth, and select cyclicals, including those in the consumer staples, for example.
Christian Abuide
Location:
Geneva
Firm:
Lombard Odier
Job:
Head of asset allocation
With inflation and interest rates on the rise, what is your growth outlook for the coming months? Do you think the risk of recession is growing?
As inflation is proving stickier than central banks hoped, they are hiking rates more quickly. It is only by destroying some demand that central banks can hope that inflation will ultimately come down. But the problem is that rate hikes are quite a blunt instrument, and therefore, we don’t know exactly how much those hikes will affect growth. For example, US housing market activity is already falling as a result of the sharp rise in mortgage rates.
The positive, however, is that we’re slowing down from a relatively strong starting point. Many households have saved during the Covid-related lockdowns and now want to spend some of those savings on travel and entertainment. The labour market is also very strong, some would say overheating. Therefore, we think the economy can slow down for some time before growth turns negative. This means we don’t foresee a US recession in 2022, but it becomes more of a risk in 2023.
As for the UK, we think growth will be negative in Q2, but not Q1 or Q3, fortunately, again avoiding a recession. Rising interest rates and high inflation are contributing to a significant cost-of-living crisis. We believe the risk of triggering a recession will keep the Bank of England from hiking as much as the Fed. We foresee ‘just’ 1% more rate hikes from the Bank of England compared with market expectations of 1.75% more hikes from here.
Willem Sels
Location:
London
Firm:
HSBC Private Banking
Job:
Global CIO
Christian Nolting
How big of a share of private markets do you have in an average client portfolio? How have mixed asset portfolios with private markets performed compared with traditional 60/40 portfolios in the last year?
The case for private market instruments is that they show low correlation to traditional asset classes and interesting risk/return characteristics. However, as they are not very liquid with no daily mark-to-market prices available, these investments tend to be only suitable for bigger portfolios.
The return band, even within sub-asset classes like infrastructure, real estate, private equity, private debt, hedge funds or digital assets, can be enormous. They offer chances for higher returns but are also fraught with higher volatility. For example, one-year listed infrastructure performance as of September 2023 covered a span of +40% to -26%. Thorough selection of the respective investment vehicles is therefore key.
Given less liquidity in these instruments, investments in private markets should only be made if they fit with an investor’s risk profile. However, private investments often offer opportunities to invest in specific larger investment projects. Examples would be if an investor wants to get exposure to markets like sustainability, energy transition and infrastructure investments.
Public investments mostly do not offer access to these kinds of investments. With the recent changes in the investment landscape towards higher yields, however, the relative attraction of liquid markets has improved.
Christian Nolting
Location:
Frankfurt
Firm:
Deutsche Bank Wealth Management
Job:
Global CIO and head of CIO and investment solutions
Manuela D’Onofrio
Have you been surprised by value stocks’ lacklustre performance this year? How much of their last decade of underperformance, relative to growth stocks, do you expect them to recoup in coming years?
The solid performance of growth in the US can be explained, in part, by the emergence of AI, which has boosted US technology stocks and has largely supported the growth style. But AI is not the only driver for the segment. Growth companies are cash-rich and generate more interest income given their higher yields. The longer refinancing rates stay higher, the greater their cash-generating capacity. These companies can then invest in their R&D to stay ahead of the competition without the need for financing.
Also, in a high-rate environment, investors are more attentive to balance sheet quality or debts ratios and growth stocks have better credit ratings and lower debt levels than cyclicals ones.
Finally, growth stocks are more immune to rising interest rates than in the past, partly due to the increasingly widespread subscription model which generates recurring revenues with greater visibility and then reduces sensitivity to the economic cycle.
We have gradually moved out of the value style toward growth stocks starting in the second quarter of the year. We expect central banks to begin easing monetary policy in 2024, so growth stocks should outperform the value style.
Alexandre Drabowicz
Location:
Paris
Firm:
Indosuez Wealth Management
Job:
CIO
Alexandre Drabowicz
edMUND sHING
Steady M&A activity means there are fewer fund providers every year. Does it shrink your asset allocation options and do you find this challenging? Do you expect the consolidation to accelerate next year?
Not at all, as there are still plenty of fund managers to choose from, globally. Ultimately, what is more important is that the right, differentiated products exist to offer to clients.
I expect this trend to continue, as there is continued downwards pressure on fee levels and thus on costs, while the regulatory burden continues to rise – forcing fund managers to combine in order to reduce costs.
Often, the problem – as with ETFs, for example – is that there are too many closet indexing or ‘me-too’ products, rather than truly innovative funds that are different in some important way.
Edmund Shing
Location:
Paris
Firm:
BNP Paribas
Wealth Management
Job:
CIO
Gerald Moser
How big of a share of private markets do you have in an average client portfolio? How have mixed asset portfolios with private markets performed compared with traditional 60/40 portfolios in the last year?
We recommend a private market exposure of between 5-20% of a client’s portfolio, depending on the risk profile. A balanced mandate should therefore have around 14% private market exposure.
The main value comes from diversification, which improves the risk profile (expected returns versus volatility) compared with a liquidity-constrained portfolio, which can only be invested in liquid asset classes.
Gerald Moser
Location:
Vaduz
Firm:
LGT
Job:
Head of investment services EMEA
Philipp Baertschi
Where is the sweet spot in fixed income markets right now?
Volatility in fixed income markets this year has been the highest in a long time. Market participants are very uncertain about the next move and major economic data points can change the market’s direction in a second. Also, market narratives have changed quickly recently from ‘higher for longer’ to the ‘immediate Fed pivot’. With such a backdrop, a fairly balanced approach within fixed income seems appropriate – neither too long nor too short, with a bias for high quality but also having some exposure to high yield.
Any fixed income strategy should be flexible and one should not be married to extreme positions. The good news for cautious investors is that even with a short- to medium-term investment grade bond portfolio – which could be called a safety portfolio – you can expect a decent return next year. Therefore any positions outside the comfort zone need to be well compensated by higher expected returns.
Philipp Baertschi
Location:
Zurich
Firm:
J Safra Sarasin
Job:
CIO
explore the different outlooks
27
01
02
We believe fixed income will be the winning asset in 2024, on a risk-adjusted basis. In contrast, we believe the Fed will lower policy rates, but only marginally.
Álvaro Manteca
BBVA
ABN Amro
Barclays Investment Solutions
BBVA
BNP Paribas WM
CA Indosuez
Citi
Commerzbank
Credit Suisse
Danske Bank
Deutsche Bank
Edmond de Rothschild
Fideuram
Handelsbanken
HSBC PB
ING
J.Safra Sarasin
Julius Baer
LGT
Lombard Odier
Natixis WM
Pictet
Rabobank
Rothschild & Co.
Santander PB
SEB PB
SocGen
UBP
UBS
UniCredit
Vontobel WM
06
We made significant portfolio changes during the first quarter of 2023. We have increased our allocation to alternatives on the promise that relative value spreads and various carry trades look a lot more interesting after a volatile 2022. Conversely, we have reduced our outright and relative exposure to traditional assets – specifically government bonds and equities.
The former was reduced after an unprecedented rally recently and is based on our view that the inflation narrative is likely to return once financial instability fears stabilise. Similarly, we reduced our allocation to global equities, mostly as the asset class seems out of sync with the markets more generally.
Søren Funch Adamsen
Danske Bank
05
Our biggest conviction is ‘higher for longer’ with respect to inflation and therefore also bond yields. We see numerous factors for inflation stickiness such as the long-term consequences of huge fiscal stimulus, growth above potential in most countries, and years of under-investment in the exploration of fossil fuels leading to structurally higher oil prices.
Added to this are factors like the commodity-intensive and costly green transformation, carbon border tax adjustments and the fact that China’s disinflationary effects are now over.
Our biggest contrarian call is that we are more cautious than market expectations for the potential of interest rate cuts. Certain market expectations already imply rate cuts early in 2024, which we find premature.
Christian Nolting
Deutsche Bank
03
We are positive on real assets including gold, which should benefit from the Fed pausing now and then cutting rates next year, combined with ongoing central bank buying and a weaker US dollar and lower bond yields. Gold and silver miners are a big contrarian call, unloved and extremely cheap despite the strong performance of gold.
We also favour Japanese stocks, despite the strong local currency performance over the last 12+ months. For USD/EUR investors, 50%-66% of this gain has been erased by a weaker JPY, but this is unlikely to re-occur going forward, as the JPY is already so weak and the Bank of Japan is likely to slowly move further away from its yield curve control policy in 2024. Valuations are still modest, profitability is still improving, share buyback programmes are now accelerating, and most foreign investors are still under-exposed to Japan.
Edmund Shing
BNP Paribas WM
15
We continue to weigh the progressive brake being applied by tight financial conditions against still-resilient consumption. This advocates for a balanced investment strategy. While we think a severe downturn will be avoided, the historical rarity of immaculate US disinflation, gradually easing growth and a contained rise in unemployment, prevents us from adding more risk to portfolios for now.
We remain overweight fixed income, with a bias to build our exposure further as we approach the beginning of rate cuts. We continue to favour quality within the asset class, notably US Treasuries and investment grade credit, but also think selected carry strategies remain attractive. Here, we prefer Brazilian local currency debt, and the higher end of the quality spectrum in high yield. We retain a neutral allocation to equities.
Christian Abuide
Lombard Odier
09
Our biggest conviction is that investors should put cash to work in spite of the high rates, which for many present a significant hurdle that keeps them from diving into the markets.
First, valuations in both bond and equity markets are now more attractive than before, providing a good medium-term entry point.
Second, a rate plateau tends to be good for bonds and equities, and valuations should pick up ahead of the rate cuts which we think will start in Q3 2024. That’s particularly the case in rate-cut cycles where we don’t see a recession, and we think the resilience of the US economy will help avert a global recession. Households have cash balances that are 2.2 times the size of the Fed’s balance sheet, so if they decide to spend or invest part of that cash, it will help the market. We think investors should move ahead of that wave of cash, and ahead of the Fed rate cuts.
Willem Sels
HSBC Private Banking
11
Our big conviction is that 2024 will finally be a good year for bond investors. Simultaneously, we also forecast a positive year for equities because of some price/earnings expansion, driven by lower interest rates.
Within equities we continue to have a preference for the growth sectors, such as IT, consumer discretionary and communication services, which implies that we continue to have a preference for US equities. We are underweight old economy sectors, materials, industrials and energy. Europe is our underweight concerning the regions. The region faces multiple headwinds, with the relatively highest energy prices in the world while many countries are struggling with the electric vehicle revolution.
Bob Homan
ING
12
The US is likely to enter a recession in 2024. Unlike a year ago, this is now a contrarian call as most investors expect a soft landing. Investors should be cautiously positioned in equities until the recession starts. The Fed is likely to react to a recession with rate cuts in the second half of 2024 which should pave the way for better equity returns. Investment grade bonds should be the main beneficiary of such a scenario in the first half of the year.
Europe could surprise on the upside in 2024. Cyclical economic indicators appear to have bottomed suggesting that the worst could be behind us. As a result, the euro is likely to get stronger versus the dollar.
A weaker US dollar in 2024 should be positive for emerging markets. While China remains a wild card, LatAm as a region should benefit from falling interest rates and stronger currencies. The Brazilian equity market is well placed to attract both domestic and foreign inflows and equity valuations are likely to move higher over the course of the year.
Philipp Baertschi
J Safra Sarasin
13
The 60/40 model works irrespective of the prevailing correlation regime. We believe that the stock-bond correlation is fundamentally misunderstood. Investors need to remember that while a balanced portfolio will not necessarily protect them from the daily volatility in markets, it will most likely protect them in the event of a recession. US Treasuries still have their merits in a portfolio, as we expect them to continue to act as a recession hedge.
From today’s vantage point, the forward relative return outlook is balanced and at least one of the two asset classes is likely to perform positively: US Treasuries, if the US enters a recession, and the S&P 500, if it does not. The latter remains our base-case scenario.
Yves Bonzon
Julius Baer
17
The biggest change we made in the last three months was to move emerging market equities to overweight from neutral, further strengthening the rest-of-the-world case against the US. We raised our equity allocation although it remains slightly underweight. On the other hand, on the alternative side, we have reduced the hedge fund quota from overweight to neutral.
Our biggest conviction is that, not only in Q3 2023, but also for the rest of the year, selection in each asset class will be the key success factor – therefore selection over allocation.
Within bonds, we favour short-term government bonds, and within credit we have a clear preference for investment grade over high yield. On alternatives, we continue to like gold as a diversifier.
Thomas Wille
LGT
17
Is it contrarian to say that most outlooks are reset by the end of January? As 2023 proved, being dynamic in your views and portfolio positioning is important. Although we’re optimistic, we expect 2024 to be another challenging year. More stability in inflation and rates markets should be helpful, but we also expect to see growth data deteriorate further.
In fixed income, we think AT1s offer excellent value. Our highest regional conviction in equity is Japan and there are some great ways to implement that trade.
At a sector level, we believe that the cycle in semiconductors is turning and this is a key overweight for us over most time frames, and provides a useful hedge to geopolitical trade tensions.
Above all, we think that it’s important to be flexible; valuations can run ahead, market conditions are unlikely to be static, so be prepared to move the portfolio around.
David Storm
RBC Wealth Management
19
We are beginning to see signs of a new anatomy in the capital market. During the rate hike cycle, a large part was being allocated towards growth and quality factors. If pressure is going down in the economic system via a soft landing and gradually lower key interest rates from central banks, the dollar may peak out and exposures that have been undesirable may once again come into focus.
This should result in a broader market participation and a less broad valuation spectrum. Swedish equities are an example of such an asset class that can be supported both by the currency and by relative valuation forces. Global emerging markets are another positioning that could start to perform a bit better. Before that happens, we perhaps need to see some more proof that validates the soft landing.
Fredrik Öberg
SEB Private Banking
16
We have been increasing our exposure to US equities at the expense of emerging market (EM) equities. Despite accommodative fiscal policy, the post-Covid recovery of the Chinese economy is falling short of expectations. EM’s long-term growth prospects remain attractive but risks outweigh potential returns in the short term.
Within equities we prefer European, UK, and – to a lesser extent – US markets. European and UK equity markets continue to be more attractive, both in terms of valuation and earnings prospects. The US market continues to benefit from favourable momentum due to the resilience of the economy and the imminent end of the rate hike cycle.
* Please note that Kleinwort Hambros and Société Générale Private Bank do not always align on asset allocation calls
Fahad Kamal
Kleinwort Hambros (SocGen group)*
25
Real GDP global growth is set to moderate in 2024 to slightly below 3%, led by the US slowdown, while eurozone and China economies will remain weak. However, the US will avoid the hard landing.
We expect headline and core inflation to fall by the end of 2024 to around 2% and 2.5%, respectively, both in US and the eurozone, getting closer to central banks targets. Fiscal policies will be less supportive but not that much, as in 2024 elections will take place in countries representing more than 50% of the world’s GDP. In this scenario, we overweight global bonds and remain neutral on equities preferring companies with high pricing power, superior cashflow generation and less cyclical exposure.
Manuela D’Onofrio
UniCredit
27
For 2024, we expect a year of two halves. In the first, we expect a US recession and major central banks to starting cutting interest rates more than markets currently expect. The recession is likely to be mild, so equity markets should rebound with the recession bottoming and rates falling.
We are therefore looking for more defensive equity plays at the beginning of the year and are willing to increase risk via small and mid-caps, for example, later in the year.
On bonds, we also prefer government bonds and might increase exposure to more risky fixed income later in the year.
Anja Hochberg
ZKB
In Association with
23
For 2024, fiscal stimulus in the US should allow the world’s largest economy to once again skirt recession. Looking back to the mid-1960s, US presidential election years have seen fiscal deficits contract rarely, and only during periods of tax increases which seems unlikely in 2024.
Positive real yields amid slowing economies in the single currency area should allow German 10-year yields to fall towards 2% in the new year until a fiscal response to the economic slowdown and structural challenges facing the German and the continental economies are mooted.
AI-linked software companies should take the baton from their AI hardware counterparts in 2024 as AI-related capital spending broadens.
2024 should see China continue to commit to its restructuring and reform of its real estate sector entering another year of a multi-year process as seen in post-bubble restructuring and reforms since 1989 in Japan, Asia, the US and Europe.
With de-globalisation complicating the China process, investors can look to Mexico and broader Latin American equities while India should continue its long-cycle outperformance as both benefit from the new global order taking shape.
Japan’s multiple lost decades now appear near an end as a weak yen, corporate reform and return of capital provide a more steady base of earnings growth for corporate Japan looking ahead.
Norman Villamin
Union Bancaire Privée
07
Our biggest convictions are government bonds, EU value and high dividend equities, Chinese equities, and infrastructure debt.
Our contrarian calls are for gold, UK equities, emerging market equities and real estate.
Renato Zaffuto
Fideuram Asset Management
02
We have been gradually adding to cash and the broader fixed income space as a way to build dry powder in case of a short-term dip in equity markets.
We have maintained a neutral duration stance as we continue to see risks of interest rates moving higher in coming months.
Unlike many investors, we have maintained an overweight to equities as we continue to see this asset class as the main source of upside potential for the medium term.
Jean-Damien Marie
Barclays Private Bank
26
We predict a USD devaluation so investors should reduce exposure to USD and opportunistically increase exposure to Japanese yen and Chinese yuan. This can be done by building exposure to the relevant equity markets (unhedged) to get the currency effect as well as the equity market upside. Valuations for both markets are appealing.
Swiss franc assets and gold should remain overweighted as true safe stores of value.
Investors should also lock in those yields. Solid emerging markets with government bond yields close to 10% are a once-in-a-decade opportunity.
Beyond FX, bonds and equities, every portfolio should increasingly be exposed to alternatives like insurance-linked securities, catastrophe bonds and commodities. Commodities are best expressed through exposure to an index like the Bloomberg Commodity index, which will deliver a well-diversified portfolio of assets.
Dan Scott
Vontobel
16
Important electoral contests will mark 2024, including in large countries such as the US, India and Mexico. These elections come against the backdrop of high or rising public indebtedness. We believe there is room to play this volatility, whether through option strategies or currencies.
We believe now is a good moment to move cash and cash-like allocations back into fixed income to lock in current attractive yields, mitigate reinvestment risk and potentially benefit from capital appreciation.
With a chance that interest rates at least stabilise, we expect private equity and private real estate strategies to re-emerge as sources of outsized uncorrelated long-term returns. Selectivity in private equity will be crucial to avoid overleveraged companies.
As the past year-and-a-half of rate rises continues to be reflected in higher funding costs, we believe it makes sense to prefer companies and countries where fixed-rate lending is prevalent to those exposed to variable rates.
Cesar Perez Ruiz
Pictet Wealth Management
24
With interest rates likely to fall, we believe investors should limit overall cash balances and take opportunities to optimise yields, using fixed-term deposits, bond ladders and structured solutions.
We expect positive returns for both equities and bonds, but focus on quality. We expect quality bonds to deliver both yield and capital appreciation and believe stocks with a high return on capital, strong balance sheets and reliable earnings are best positioned to generate earnings despite weaker economic growth.
The US dollar should be stable as we enter 2024, yet USD weakness may emerge as the year progresses. We therefore think it is appealing to sell USD upside to generate yield. In commodities, we expect Brent Crude to trade in a $90–$100 range through 2024.
Geopolitical uncertainty means investors need to prepare for volatility ahead. In addition to diversification, investors can further help insulate portfolios against specific risks through capital preservation strategies, using alternatives, or with positions in oil and gold.
Finally, investors should diversify with alternative credit. Elevated price and spread volatility in fixed income amid high global debt balances is a supportive backdrop for various credit strategies including credit arbitrage and distressed debt.
Mark Haefele
UBS Wealth Management
08
Our biggest conviction is that we are close to or at the peak of this central bank hiking cycle. We still see good opportunities within the alternative investments area but are very selective at the moment. The Magnificent Seven stocks have dominated the news and markets during 2023, and although this is justified to a large extent, there might be a time to look at other companies as well during 2024.
It’s hard to tell whether that stance is contrarian or not as markets have been very divided in 2023 when it comes to performance. The US election will of course also start getting more and more attention during the year.
Johann Guggi
Handelsbanken
20
Our main change has been to reduce our weighting in equities due to a more cautious outlook on economic growth in China and Europe. We are also advising clients to increase exposure to emerging markets in countries where central banks maintained strong inflation-fighting credentials in the last tightening cycle.
In equities, we are recommending sectors with strong balance sheets and resilient moats and margins, with a strong preference towards the pharma sector, which has a mix of innovation, underlying growth potential based on demographic trends, and relative valuation to other high quality stocks. In fixed income, we believe the best risk/reward is in the financial sector in light of the recent US regional bank turbulence.
Juan de Dios Sanchez-Roselly
Santander Private Banking
24
At the start of September, we reduced developed market high yield bonds to neutral from overweight and lowered eurozone ex-UK equities to underweight from neutral. These reductions allowed us to raise developed market investment grade corporate bonds to neutral from underweight.
Our biggest conviction in equities is an Asia ex-Japan overweight, on the view that China is at the opposite point of the policy cycle to the US and Europe, and is easing rather than tightening. We also think Indian equities will continue to outperform. In bonds, our conviction is in Asia USD bonds, where we are overweight. Our overweight on UK equities is arguably more contrarian. This is based on the attractive dividend yield, value-sector tilt and global rather than domestic exposure.
Manpreet Gill
Standard Chartered
18
It would be hasty to have big convictions in the current economic climate. We have just seen some of the most aggressive interest rate increases in a very long time and the world continues to fight with inflation levels that are still considerably higher than central banks' targets, not to mention the geopolitical instability and the upcoming elections in the US.
At the beginning of 2023, we expected the global economy to muddle its way through avoiding a recession, but that inflation will stay sufficiently high for central banks to change their stance. Now, this is becoming the consensus trade. Equity markets have rallied, initially led by expectations that AI was going to have a significant impact on our everyday lives, but more recently, the rally is more broadly based.
For 2024, we continue to expect more of the same. A global economy that continues to avoid a severe recession and inflation that continues to decrease but stays above central bank targets, especially in Europe.
In short, perhaps the biggest contrarian call for 2024 is not on how we time markets but rather on how we should be invested from the very beginning and avoid the temptation to chase the ups and downs that are likely to destroy value in 2024.
Carlos Mejia
Rothschild & Co
22
Looking forward, we believe that the macro and fundamental context will be slightly different next year. Global growth is likely to stabilise, inflation is likely to continue moving lower and optimistic earnings expectations for the Magnificent Seven create some downside risk for these stocks in case of earnings disappointment.
As such, we believe investors need to lock in higher yield by lengthening duration on their government bonds portfolios and should take advantage of spreads on investment grade bonds (where the curve is upward sloping).
On the equity side, it might be wise to allocate some of the capital to the laggards – value, small and mid-caps and international markets. Gold and hedge funds remain interesting portfolio hedges.
Charles-Henry Monchau
Syz Group
06
US investment grade corporate bonds are likely to post similar returns to equities based on their historic behaviour after peaking interest rates. However, they will have a much more moderate volatility compared with equities.
We favour selected stocks enabling the rollout of AI but with still decent valuations. We also like businesses that are early adopters of AI leading to major productivity gains, in sectors such as financials, healthcare and media.
We remain cautious on luxury stocks since consumption remains weak in China and US customers are moderating their discretionary purchases.
We are also cautious on automotive stocks, on the back of the price war in electric vehicles, increasing market share from Chinese producers, and higher leading rates limiting the affordability for many households to buy a new car.
Lars Kalbreier
Edmond de Rothschild
Discover
Discover
Discover
10
We remain strategically constructive on risky assets going into 2024, as we believe the macroeconomic environment will remain more favourable than the market expects, particularly across the Atlantic. We favour greater exposure to US large caps but also think emerging assets should stand out next year thanks to a positive growth differential between emerging and advanced economies, combined with a weaker dollar. Finally, a satellite exposure to listed real estate equities could be a source of alpha, as the sector should benefit from an easing of rates next year.
On fixed income, we believe the year will be played out in two phases, starting with a still cautious position on government bonds, as we think forecasts of rate cuts are overestimated. On the other hand, the second half of the year could see bonds perform well, particularly on the belly of the yield curve (up to five-year maturities), as central banks begin to cut rates. We strongly believe that yield will be a major contributor to portfolio performance next year, which is why we are maintaining high exposure to high-quality corporate debt.
Alexandre Drabowicz
Indosuez Wealth Management
21
Adding high-quality bonds is one of our convictions for 2024. We expect US growth to slow, which means today’s bond yields offer an attractive opportunity regardless of whether one expects yields to fall moderately (in a soft landing scenario) or significantly (in a recessionary scenario). Some further outperformance of risky assets into the early part of 2024 is a second conviction, which would be consistent with late-cycle behaviour and emergence from 2023’s US earnings recession.
One contrarian call is our expectation of a rebound in North Asian equities. This may be relatively shorter term in nature, but sentiment and positioning on Chinese market assets, in particular, seems to have become unusually one-sided.
Manpreet Gill
Standard Chartered
04
We continue to hold large overweights in medium duration US high-quality bonds – both US Treasuries and investment grade corporates.
We are encouraging investors to lock in the high level of yields, anticipating that the normalisation of inflation will lead central banks to soften their very aggressive monetary policy stance.
Overall, we are 1% underweight in fixed income (-1%) because of our very large underweight positions in European and Japanese sovereign debt, as well as our underweight position in high yield debt.
In October, for the first time since early 2020, we raised our allocation to global equities from neutral to overweight.
In particular, we favour profitable US small and mid-caps, where we see growth as being reasonably priced, trading at a significant discount to its historical average.
While we anticipate slower global growth in 2024, we expect S&P 500 earnings per share to rise 12% over the next two years and believe the investment environment has significantly reset for stronger returns in the event of an improvement in the balance of growth and inflation in the coming 12-18 months.
Guillaume Menuet
Citi
08
We have reduced our allocation into high yield corporate bonds and instead moved overweight in emerging market local currency debt. Tighter financial conditions, the slow economic growth environment and narrow spreads drove us to reduce our allocation to high yield credit. Instead, the weaker outlook for the US dollar and the near peak for Federal funds rate justifies our positive view on emerging market debt denominated in local currencies.
We have maintained an overweight in the US consumer discretionary sector since Q3 2022 as we anticipated pressures on consumer spending were going to ease in 2023 as inflation receded and pressure on borrowing costs declined.
Moz Azfal
EFG International
17
In our equity allocations, we have raised exposure to emerging markets, as they should benefit from China’s reopening, falling inflation, and a weaker US dollar. We also increased our exposure to small-cap stocks, as their earnings expectations have fallen more than for large caps.
In fixed income, we recently took profit on US Treasury inflation-protected securities, as we expect a significant decline in headline inflation by year-end.
In currency markets, we raised exposures to the euro and Japanese yen. Chinese equities remain our highest conviction at the moment. We also favour the healthcare sector after its recent underperformance.
Stéphane Monier
Lombard Odier Private Bank
14
Our biggest conviction is that as inflation falls back towards central banks’ targets, the focus will shift from inflation to growth risks. This has important implications for portfolio construction. It would most likely mean that the strong correlation we have observed over the past two years between equity returns and bond yields would change. In that case, bonds would once again become a good diversification proposition for equity portfolios. Risk would shift from duration to credit, as concerns shift from the potential for high inflation to recession.
Gerald Moser
LGT
20
Next year, we predict soft economic growth and gradually dwindling inflation. We see the economy slowing further as fiscal stimulus is wound down and the lagged impacts of tighter monetary policy feed through. The adjustment will be mitigated by stubbornly strong labour markets and softer inflation which will restore household purchasing power. The US economy should continue to hold up better than the eurozone and the UK. In this environment, central banks should gradually loosen monetary policy from early summer, once they are sure core inflation is under control.
This seems to us an ideal environment to increase our exposure to investment grade corporate bonds. Companies still have strong balance sheets and are paying high returns. As well as adding to these positions, we retain a highly diverse global positioning, which has allowed us to catch the rally in equities while retaining protection against fresh turbulence. We particularly like the US equity markets which can ride their better economic prospects. Lastly, we have changed our dollar overweight against other leading currencies to neutral as we do not see wide divergence in major central bank policies ahead.
Clémentine Gallès
Société Générale Private Banking
How would you describe 2023 in three words?
Resilience, rates and AI
What is your top book/podcast/TV recommendation this year?
The podcast on BNR (NL radio) from Boekestijn and de Wijk is always a pleasure to listen to.
How would you describe 2023 in three words?
Resistance, re economic growth and inflation
What is your top book/podcast/TV recommendation this year?
Book: Seven Crashes: The Economic Crises That Shaped Globalisation, by Harold James
How would you describe 2023 in three words?
Dispersion, regime shift, liquidity-driven
What is your top book/podcast/TV recommendation this year?
Book: Richer, Wiser, Happier, by William Green
How would you describe 2023 in three words?
Recessionary, inflationary, challenging
How would you describe 2023 in three words?
Higher for longer
What is your top book/podcast/TV recommendation this year?
Book: Noise, by Daniel Kahneman
How would you describe 2023 in three words?
Divergences, US resilience, AI rollout
What is your top book/podcast/TV recommendation this year?
Book: The Age of AI and Our Human Future, by Henry Kissinger, Eric Schmidt and Daniel Huttenlocher
How would you describe 2023 in three words?
Confused, unsmoothed, disordered
What is your top book/podcast/TV recommendation this year?
Books:
Silicon, by Federico Faggin
Artificial Intelligence versus Natural Intelligence, by Roger Penrose and Emanuele Severino
Doom, by Niall Ferguson
How would you describe 2023 in three words?
Challenging but exciting
What is your top book/podcast/TV recommendation this year?
Book: Life 3.0, by Max Tegmark (even more interesting after this year’s development regarding AI)
How would you describe 2023 in three words?
United States resilience
What is your top book/podcast/TV recommendation this year?
Book: The AI Dilemma, by Art Kleiner and Juliette Powell
How would you describe 2023 in three words?
Recession, resilience, reaccelaration
What is your top book/podcast/TV recommendation this year?
The Prince: a podcast by The Economist’s Sue-Lin Wong about Xi Jinping’s life from childhood to the top position in China.
How would you describe 2023 in three words?
Seven, resilient, violent
What is your top book/podcast/TV recommendation this year?
I choose an album this year: Metallica’s 72 seasons. A retrospective album with youthful energy performed by a bunch of 60-somethings.
How would you describe 2023 in three words?
Stimulating, artificial and resilient
What is your top book/podcast/TV recommendation this year?
Podcast: Odd Lots
How would you describe 2023 in three words?
The great normalisation
What is your top book/podcast/TV recommendation this year?
Book: The Man Who Solved The Market: How Jim Simons Launched The Quant Revolution, by Gregory Zuckerman
How would you describe 2023 in three words?
Volatility, geopolitics, bonds
What is your top book/podcast/TV recommendation this year?
The G-Zero podcast
How would you describe 2023 in three words?
Facts over forecasts
What is your top book/podcast/TV recommendation this year?
Book: Think Twice: Harnessing the Power of Counterintuition, by Michael J Mauboussin
Podcast: All Else Equal: Making Better Decisions, produced by the Stanford Graduate School of Business
TV: The Lincoln Lawyer, an American legal drama
How would you describe 2023 in three words?
Unprecedented, bankruptcy, AI
What is your top book/podcast/TV recommendation this year?
TV: Painkiller (Netflix)
How would you describe 2023 in three words?
Higher, stronger, longer
What is your top book/podcast/TV recommendation this year?
Book: How to Invest, by David Rubenstein
Podcast: The Rest is Politics
TV: Break Point or the final series of Succession
How would you describe 2023 in three words?
AI, conflict, rates
What is your top book/podcast/TV recommendation this year?
Book: The Age of AI and Our Human future, by Henry Kissinger, Eric Schmidt and Daniel Huttenlocher
How would you describe 2023 in three words?
War, AI and heat records
What is your top book/podcast/TV recommendation this year?
Book: The Fraud by Zadie Smith
Podcast: P3 documentary – a local Swedish series with broad subjects and high quality
TV: Vetenskapens värld and similar science programmes. All the fantastic innovations it features create hope.
How would you describe 2023 in three words?
Resilience, rates, geopolitics
How would you describe 2023 in three words?
Lessons in diversification
What is your top book/podcast/TV recommendation this year?
Book: Range, by David Epstein
How would you describe 2023 in three words?
AI, narrow, disinflation
What is your top book/podcast/TV recommendation this year?
Book: What I Learned About Investing from Darwin, by Pulak Prasad
TV: WeCrashed
How would you describe 2023 in three words?
Transformational, disruptive, unstable
What is your top book/podcast/TV recommendation this year?
Book: Populism and the Future of the Fed, by James Dorn
How would you describe 2023 in three words?
Deglobalisation, digitalisation, debt
What is your top book/podcast/TV recommendation this year?
TV: The Offer (Netflix)
How would you describe 2023 in three words?
European interest rates
What is your top book/podcast/TV recommendation this year?
Book: Staying Alive, by Vandana Shiva
Podcast: A Liberal Israeli’s View, by Yuval Harar
How would you describe 2023 in three words?
Recession? What recession?
What is your top book/podcast/TV recommendation this year?
TV: The Lost Pirate Kingdom (Netflix).
How would you describe 2023 in three words?
Mercurial and rate-pivot
What is your top book/podcast/TV recommendation this year?
Book: Invention and Innovation, by Vaclav Smil
Our main conviction is that interest rates have clearly peaked and that central banks will start cutting sooner than they are currently telling the market. In order to benefit from this, we have an overweight duration in our portfolio whereby we focus on the US duration above the Euro duration.
How would you describe 2023 in three words?
Resilience, rates and AI
What is your top book/podcast/TV recommendation this year?
The podcast on BNR (NL radio) from Boekestijn and de Wijk is always a pleasure to listen to.
Richard de Groot
ABN Amro
