At the beginning of May, we decided to reduce the equity weighting in all discretionary mandates to slightly underweight. This move has been based on geopolitical events and increasing trade tensions.
While investors from time to time might be frightened by the outlook of higher rates, a spiraling out of yields is not, in our view, in the cards for the time being.
Our constructive stance on the global economy has not yet fundamentally changed. Neither increased inflation nor higher bond yields are a serious threat for now.
Nevertheless, at our April Investment Committee (IC) meeting, we decided to reduce the equity weighting in our discretionary mandates to slightly underweight. At our May IC meeting, we adhered to our view that risks for risky assets have recently increased. Therefore, we remain slightly underweight in equities. We will continue to be disciplined and invest with a mid- to long-term investment horizon.
So far, protectionism in the U.S. (America first) in tandem with political uncertainty in Italy and Spain (resolved for the time being) have influenced the greenback positively.
The longer-term effect, however, in our view, is more likely to be negative (retaliation and negative effect on
productivity). This would be the case particularly if the U.S. were to risk its good relationship with its allies and lose its safe haven status. Recently, we increased the EUR exposure for USD discretionary mandates by
switching a currency hedged euro zone ETF into its unhedged counterpart.
As mentioned in past investment outlooks, we remain convinced that a 5% position in gold in balanced mandates is ideal to hedge against tail risk events. Tail risk events can be of a geopolitical nature or consist of a full-fledged trade war or another drawdown that hits the equities and other risky assets. We intend to work the gold position should it reach the upper or lower band of our expected trading range of USD 1’200 to USD 1’400 per ounce.
Compliments of VONTOBEL , a member of the EACCNY