The Cyprus bailout is hardly likely to be the last for this country. The credit crisis in Europe remains a factor of uncertainty. Therefore we are taking a slightly more defensive position. Equities remain favoured, but the equity overweight is selectively reduced……..
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Swisscanto Investment Update April 2013
The financial aid for Cyprus agreed at the last moment has sent mixed signals. One negative signal is the fact that ordinary bank deposits in the EU are in principle not protected from access by the government for the purpose of restructuring banks and public finances, even if smaller assets were spared in this case. The tough stance of the European negotiators has an effect that has to be regarded as positive. This indicates that future bailout measures will have a high price for those bailed out. Now a somewhat more cautious stance is the order of the day, which we are implementing by reducing the equity overweight in the portfolios. Nevertheless, we expect that the equity markets will continue their upward trend for familiar reasons, such as the improvement in the US economy or the continued loose monetary policy.
Swiss equities no longer good value
The rally on the Swiss equity market in recent months means the valuation is no longer attractive, but rather expensive by international standards. For this reason, Swiss equities are only weighted neutral. We are still holding an overweight in European equities, albeit less strongly than in the previous month. Given the recent rapid growth of the markets, we are now starting to take profits and are increasing the liquid assets allocation for this purpose. At sector level we prefer media, automotive/components, capital goods and technology/software.
More cautious even in high-yield bonds
For bonds it is still the case that top-rated government securities include the risk that returns cannot even cover inflation. This is why we prefer corporate bonds. However, at the same time we are continuing the more conservative alignment of our portfolios, including in the high-yield sector, where the yield potential has fallen somewhat.
More confidence in alternative investments
In commodities, we rate the rolling returns currently on the markets as attractive. Contracts on energy commodities such as petroleum or natural gas would benefit from an economic recovery, but also from an intensification of the Middle East crisis or the Iran conflict. We have slightly overweighted hedge funds. In the past it has been shown that these hedge funds were able to achieve positive returns during periods of rising interest rates. With the exposure in hedge funds at the expense of government bonds, we are therefore hedged in case of a possible rise in interest rates.
In currencies, we are of the opinion that the devaluation of the Japanese yen turned out too strong. Therefore we are replacing the yen short position with a euro short position.
Source: ETFWorld – Swisscanto
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