Markets and Opinions Q1 2020 - Colin&Cie and Opinions Q1 … · MARKETS AND OPINIONS / FIRST QUARTER 2020 / REVIEW In EUR / market developments since December 31, 2018 as of December

MARKETS ANDOPINIONSFirst quarter 2020

Zurich, December 2019

2019 was an extremely satisfactory year from an investment perspective

Page 2 | Colin&Cie. — Unique Wealth Management | 03/01/2020

Review

In retrospect, 2019 looks like the mirror image of the previous year: In 2018, rising interest rates and fears of recession led to negative returns across all investment categories.

In 2019, however, brought strong returns that were above average in historical terms.

Equities really took off this year. The equities component in our portfolios continues to generate double-digit growth.

Outlook

MacroIn general, the latest economic data is cause for optimism.

We predict that the low growth forecasts for 2020 will actually be exceeded, with the result that estimates of global growth will have

to be continuously adjusted upwards.

We expect only a temporary rise in inflation, which will generally remain under control and therefore won't give rise to market uncertainty.

Interest rates and bonds

The global economy will pick up steam in 2020, which will bring with it a slight rise in interest rates, but Central banks are set to keep the situation under control.

The long-term earnings potential of this asset class – especially after the positive developments in 2019 – is limited, and we are therefore further reducing its share in our portfolio.

Our bond strategy continues to focus on secured repayment throughout the maturity period.

Equities

For 2020, we see the potential of surprisingly strong company sales growth. This will take pressure off margins and lead to solid profit growth, which is why we are slightly increasing the share of equities in our portfolio.

After a difficult 2019 in the company sales context, it will again be easier to beat long-term averages in the new year.

We strive for a balanced distribution of assets from various industrialised countries, which we are selectively supplementing with specific focus areas for investment.

Alternative investments

What makes alternative investments important for us are the non-correlated returns compared to traditional asset classes such as equities and bonds.

In this asset class, we place particular emphasis on transparency and accountability.

In the first quarter, we will add another element to this asset class, namely an investment in the field of energy efficiency.

By means of various instruments, we are currently investing in topics as diverse as alternative energies, real estate, private equity, special and trade financing, reinsurance risks and litigation financing.

Below, you will find additional information on these instruments.

MARKETS AND OPINIONS / FIRST QUARTER 2020

Table of contents

Review Page 4 Review of financial markets Investment strategy performance

Outlook Page 9 Economic outlook Interest rates and bonds outlook Equities outlook Alternative investments outlook

Asset allocation Page 14 Strategic asset allocation Tactical asset allocation Current tactical asset allocation

Legal notice Page 20 Our offices and contact details Disclaimer

MARKETS AND OPINIONS / FIRST QUARTER 2020

Page 3 | Colin&Cie. — Unique Wealth Management | 03.01.2020

Review

ReviewEconomic developments

MARKETS AND OPINIONS / FIRST QUARTER 2020 / REVIEW

Source: Thomson Reuters / Colin&Cie

In retrospect, 2019 looks like the mirror image of the previous year: in 2018, rising interest rates and fears of recession led to negative returns across all investment categories. 2019 was an extremely satisfactory year for market participants.

In fact, it was a very good year for investors, with strong returns that were above average in historical terms. As such, practically all asset classes yielded positive returns.

While the economy as a whole avoided a recession, several industries faced a downturn in 2019, accompanied by falling sales and profits.

Early economic indicators (such as purchasing managers' indices in the manufacturing sector, see charts to the left) suggest that the market has bottomed out and give reason for hope that the slowdown was of a temporary nature and that the global economy will continue to recover.

Purchasing Managers' Index: Europe

Chart - 3 years

Purchasing Managers’ Index: EM

Chart - 3 years

Purchasing Managers’ Index: USA

Chart - 3 years

Purchasing Managers’ Index: Japan

Chart - 3 years


ReviewBond market developments



Bonds performed significantly better in 2019 than in 2018 – despite the fact that over 35% of European corporate bonds exhibited negative returns in early 2019.

At the beginning of 2019, government bonds benefited from this uncertainty, causing yields to fall significantly. This trend was triggered by the US Federal Reserve's (Fed) change in strategy from higher to lower interest rates.

By contrast, at the end of the year, riskier bond classes benefited from positive trade developments.

Accordingly, yields on bonds with speculative ratings fell, while yields on government bonds are once again significantly higher than their low point in the summer.

The somewhat steeper yield curves reflect the renewed optimism regarding global economic growth.

Globally, bonds worth USD 17 trillion were in the negative yield range during the autumn.

The new ECB leadership also signalled that the end of QE, and thus a departure from its very expansive monetary policy, is far off in the future.

10Y interest rates: Germany

Chart - 3 months

10Y interest rates: US gov’t bonds

Chart – 3 months

Chart – 5 years Chart – 5 years


10Y interest rates: Germany 10Y interest rates – US gov’t bonds

ReviewDevelopments in equity markets


In EUR / market developments since December 31, 2018 as of December 13, 2019 / Thomson Reuters

After the heavy losses in 2018 (which we did not consider justified) equities really started to rally this year. The equity component of our portfolios posted a strong performance of almost 25%.

A number of geopolitical developments unsettled equity investors in 2019: The ongoing US trade war against China, the unclear outlook for the UK's withdrawal from the EU and the unrest in Hong Kong are/were just some of the sources of concern among investors.

These concerns have led to high capital outflows from equity markets, which have been primarily channelled into bonds. The strong performance of equities has also prompted investors to realise their profits.

However, due to this underinvestment in equities, there is also a high potential for frustration, as equities have rallied steadily – especially towards the end of the year – and investors who were “on the sidelines” either did not participate at all or only at below average levels.

In principle, we interpret such outflows from equities as a positive sign in the longer run, since the equity holdings will increase again in the future.

Our portfolios benefit from broad geographical diversification; we were able to anticipate the weakness of the Japanese market at an early stage and thus closed out our local investments in the spring.

Our long-standing focus on the technology sector (e.g. NASDAQ, which has a strong technology focus) has paid off again this year.

Main indices

Name Year chg. %


ReviewAdjustments and transactions


Source: Colin&Cie. Portfolio Management System / Morningstar Direct

Our portfolios showed strong growth in 2019 and benefited from the positive developments in bond and equity markets.

We have adjusted our assessment for equities to positive (from neutral) and are currently increasing our exposure to this asset class. We believe that the economic upturn will produce positive surprises and will boost the performance of equity markets.

We strive for a balanced distribution of assets from various industrialised countries. The economic outlook for the US is stable, not least because historical data points to strong results in election years. Europe will benefit more from the economic upswing, given that the sector breakdown is of a more cyclical nature.

The European fund that we launched three months ago has had a strong start, which confirmed our selection process for actively managed funds.

Our actively managed funds in the technology and healthcare sectors have continued to perform in line with our expectations and will make a positive contribution to overall performance.

Our increased equity holdings go hand in hand with reduced exposure to bonds. Due to the lower interest rates, the fixed-interest sector generated very strong returns in 2019. It will not be possible to replicate these in the new year.

However, low interest rates are here to stay in the long run, resulting in a generally sound market environment for bonds. The earnings potential of this asset class is currently limited. Due to the lower expected returns, we have reduced the weighting of fixed-income investments in our portfolios. The primary purpose of this asset class is portfolio stabilisation.

We continue to focus on alternative investments, for which we will select additional managers in the coming months.

Portfolio performance in EUR

Chart – Development since 31 December 2010

Performance of mandates in CHF Chart – Development since 31 December 2012


Outlook

Economic outlookSigns of stabilisation

MARKETS AND OPINIONS / FIRST QUARTER 2020 / OUTLOOK

In principle, the latest economic data are cause for optimism: we expect the global downturn to gradually abate and to make way for renewed momentum.

We predict that the low growth forecasts for 2020 will actually be exceeded, with the result that estimates of global growth will have to be continuously adjusted upwards.

The effect is an overall positive sentiment on markets. On the risk side, however, many of the on-going geopolitical issues are still to be resolved.

It remains to be seen whether the outcome of the British elections and the hoped de-escalation in the US-China trade war will produce lasting effects. If they do, this could push markets even higher.

Of course, these conflicts won't simply disappear, and capital markets are likely to experience tension and volatility also in 2020.

We expect only a temporary rise in inflation (see chart below on the right), which will generally remain under control and therefore won't give rise to market uncertainty.

Against this backdrop, the US Federal Reserve (Fed) and the European Central Bank (ECB) will continue their loose monetary policy and their balance sheets are thus set to grow further.

However, there will be no repetition of the interest rate cuts that we saw in 2019. At most, moderate rate cuts are possible, given that monetary policy has reached its limits. There will thus be a growing need for fiscal stimulus.

Copper and semiconductors act as early indicators

Chart – copper for industry; semiconductors for services

Inflation outlook

Chart – consumer price indices

Source: Thomson Reuters / Colin & Cie

Source: Thomson Reuters / Colin&CiePage 10 | Colin&Cie. — Unique Wealth Management | 03/01/2020

Interest rate and bond outlookThis year's strong performance will not repeat itself


The global economy will pick up steam in 2020, which will bring with it a slight rise in interest rates, but central banks are set to keep the situation under control.

We expect interest rate levels to remain stable over the next few months: In three months' time, we expect the yields of euro-denominated 10-year government bonds (Germany) by -0.35% (currently: -0.35%), and those of Swiss franc-denominated bonds by -0.6% (currently: -0.6%). For US government bonds, we expect yields to increase by 1.8% (currently: 1.8%).

Corporate bonds continue to be the focus of our bond market strategy, given that they benefit from stable interest rates and narrowing risk premiums compared to government bonds.

On account of the rather flat yield curves, long-term bonds are set to be particularly affected by the decline in prices. As a result, we expect slightly negative yields for many high-quality bonds in 2020.

Our bond strategy continues to focus on fixing maturities mentally, rather than actively managing them, with the aim of securing repayment despite volatile price developments.

This enables us to achieve predictable and secure annual returns in the context of broadly diversified funds.

Overall, we see hardly any need to adjust our currency forecasts and maintain our neutral stance.

Interest rate dev. of 10-year government bondsInterest rate dev. of 10-year government bonds

Performance of EUR corporate bonds

Chart - Development since 2010


Page 11 | Colin&Cie. — Unique Wealth Management | 03/01/2020 Source: Thomson Reuters / Colin&Cie

Equity outlookImproved prospects


The factors contributing to this positive outlook continue to be expansionary-minded central banks, the general decline in political uncertainty and, above all, the brighter economic climate.

For 2020, we thus see the potential of surprisingly strong company sales growth. This will improve margins and lead to solid earnings growth. After a difficult 2019, it will be easier to beat long-term averages in the new year.

In addition, there are some indicators that investors will once more increase their exposure to equities in the wake of positive news.

Statistically speaking, US election years are good years for stock markets. A review of the S&P 500 since World War II reveals average gains of 8.5% in the 12 months leading up to an election, compared with an annual performance of 7.2% across all years.

The major “FAANG” technology stocks (Facebook, Amazon, Apple, Netflix and Google) have ended a year-long downward trend, which bodes well not only for the technology sector but also for stock markets as a whole.

Compared to bonds, equity markets remain favourably priced. Viewed in isolation, however, equities have recently reached new all-time highs and are becoming increasingly expensive (see chart below right).

Relative geographical price developments

Chart – since 2010

Global stock market rating (MSCI ACWI)

Chart – price/earnings ratio over the past ten years




Outlook for alternative investments: we are planning a new investment in the field of energy efficiency


Source: Thomson Reuters / Colin&Cie.

Given the very low interest rate levels for bonds, and the challenge of the advanced economic cycle for equities, alternative investments are becoming increasingly important from a long-term and strategic perspective.We appreciate these investments for their returns, uncorrelated to traditional investment classes such as shares and bonds. In addition to diversification, this also makes it possible to tap into new sources of profits.In the first quarter, we will add another element to this asset class, namely an investment in the field of energy efficiency which will generate stable, annual returns.We have implemented our existing exclusive investment solutions according to plan and are now in the early phase of the investment.Our yield-oriented investments in tangible assets are based on stable, long-term purchase agreements, which enables us to calculate and realise returns with a high degree of accuracy over the coming years. Our investments in tangible assets have been underway since autumn 2016 and have developed in line with our projections. Gold will only benefit from rising inflation expectations in the short term. Once these expectations start to decline, gold will come under pressure.In the course of the next three months, we expect the gold price to reach USD 1,500 (currently: USD 1,475). With regard to crude oil, the US has stepped up domestic shale oil production. As a result, the country is now a net oil exporter for the first time in 70 years. In view of the strong oil supply in 2020, our outlook for the price of crude oil is neutral.We expect the market to stabilise and project a Brent crude oil price of USD 64 (currently USD 65) in the course of the next three months.

Gold price developmentsChart - Development since the beginning of 2008

Crude oil price developmentChart - Development since the beginning of 2008

Source: Thomson Reuters / Colin&Cie.

Page 13 | Colin&Cie. — Unique Wealth Management | 03.01.2020

Asset allocation

Strategic asset allocationOverview of investment strategies

MARKETS AND OPINIONS / FIRST QUARTER 2020 / ASSET ALLOCATION

Conservative

Dynamic

Balanced

Aggressive

Long-term retention of assets. Investment horizon of at least three years. Minimum exchange rate fluctuations, regular income from interest receipts.

Strategic allocation/investment instruments used: Liquidity 0 - 100% Fixed income 0 - 100% Equity 0% Alternative investments 0% (0 - 40%*) Forward and derivative

transactions, Mostly for hedging purposes only

Long-term real asset growth with higher rate fluctuations. Investment horizon of at least five to eight years. Income predominantly from capital gains, complemented by interest and dividend receipts.

Strategic allocation/investment instruments used: Liquidity 0-70% Fixed income 0 - 70% Equity 30 - 70% Alternative investments 0 - 25% (0 - 35%*) Forward and derivative


Long-term real asset growth with moderate rate fluctuations. Investment horizon of at least three to five years. Income from interest and dividend receipts as well as capital gains.

Strategic allocation/investment instruments used: Liquidity 0 - 100% Fixed income 0 - 100% Equity 0 - 40% Alternative investments 0 - 15% (0 - 25%*) Forward and derivative

transactions Mostly for hedging purposes only,

Long-term real asset growth with major rate fluctuations. Investment horizon of at least eight to ten years. Income predominantly from capital gains, complemented by interest and dividend receipts.

Strategic allocation/investment instruments used: Liquidity 0 - 50% Fixed income 0 - 50% Equity 50 - 100% Alternative investments 0 - 40% (0 - 50%*) Forward and derivative



* Based on the asset management agreement

0% 50% 100%

Liquidity

Fixed income

Equity


0% 50% 100%

Liquidity

Fixed income

Equity

Alternative Investments

Tactical asset allocationOverview of investment strategies


Conservative

Dynamic

Balanced

Aggressive

0% 50% 100%

Liquidity

Fixed income

Equity


0% 50% 100%

Liquidity

Fixed income

Equity


Legend: = current positioning

= previous positioningPage 16 | Colin & Cie. — Unique Wealth Management | 03/01/2020

Current tactical asset allocationAsset class weighting


Liquidity 5%

Fixed income 95%

Equities 0%

Neutral

Alternative investments 0%

0%

0%

0%

5%

70%

20%

Neutral

5%

0%

5%

0%

Portfolio 100% 100%

5%

38%

50%

Neutral

7%

0%

7%

0%

5%

10%

75%

Neutral

10%

0%

10%

0%

100% 100%

2.5%

82.5%

0%

Current

2%

52.5%

23%

Current

100% 100%

1.5%

20%

51%

Current

1%

0%

74%

Current

100% 100%

15%

5%

0%

10%

22.5%

7.5%

5%

10%

27.5%

5%

15%

7.5%

25%

5%

15%

5%

o

-

+

TAA

+

+

+

+

Private debt

Private equity

Real assets

Conservative Balanced Dynamic Aggressive


Current tactical asset allocationEquity weighting by region




USA

Europe

Germany

United Kingdom

Switzerland

Rest of Europe

35%

50%

35%

5%

5%

5%

35%

50%

5%

5%

35%

5%

35%

50%

5%

35%

5%

5%

Asia/Pacific

Japan

5%

5%

5%

5%

5%

5%

Emerging markets 10% 10% 10%

50%

35%

10%

10%

10%

5%

5%

5%

10%

35%

50%

30%

5%

10%

5%

35%

50%

10%

5%

30%

5%

35%

50%

10%

25%

10%

5%

5%

0%

5%

0%

5%

0%

15% 15% 15%

Neutral Neutral Neutral NeutralCurrent Current Current Current

50%

35%

10%

5%

10%

10%

5%

0%

15%

TAA

o

o

o

-

o

o

o

-

o

EUR CHF GBP USD

Current tactical asset allocationEquity weighting by sector




Costumer discretionary :

Automobiles, luxury, media, retail

Consumer staples:

Food and beverage production, consumer goods

Energy:

Exploration & production, coal, refining, equipment

Finance:

Banking, insurance, real estate

Healthcare:

Pharmaceuticals, biotechnology, healthcare

Industrial:

Capital goods, transport, aviation and defence

Technology:

Internet, software, hardware, semiconductors

Materials:

Chemicals, mining

Telecom:

Integrated communication, wireless communication

Utilities:

Gas, water, conventional electricity

Sectors and subsectors

(1) Average weighting of MSCI World, Euro Stoxx 50, S&P 500, DAX, SPI, Nikkei 500.

Finance

Technology

Costumer discretionary

Healthcare

Industrial

Consumer staples

Energy

Materials

Telecom

Utilities

18%

9%

14%

16%

12%

11%

5%

7%

5%

3%

-

o

o

o

o

o

o

o

o

o

Neutral (1)TAA

Legal notice

Luxembourg

16, Rue Gabriel Lippmann5365 MunsbachLuxembourg

Phone +352 272 135 205Fax +352 272 135 [email protected]

Contact person:

Joachim ErdmannManaging Partner

Bernd KlingbeilManaging Partner

Zurich

Gerbergasse 58001 ZurichSwitzerland

Phone +41 58 218 85 55Fax +41 58 218 85 [email protected]

Contact person:

Walter ArnoldManaging Partner

Marcel SchällebaumManaging Partner

Schaffhausen

Vordergasse 768200 SchaffhausenSwitzerland


Contact person:

Peter StrohmManaging Partner

Lugano

Via F. Pelli 13A6900 LuganoSwitzerland


Contact person:

Leendert van Hoeken Managing Partner

Zug

Rigistrasse 36300 ZugSwitzerland


Contact person:

Thomas WarneckeManaging Partner

About Colin&Cie. Wealth ManagementOur offices and contact details

MARKETS AND OPINIONS / FIRST QUARTER 2020 / IMPRINT


The information and opinions contained in this document are from sources we regard as reliable. Nevertheless, we are unable to guarantee the reliability, completeness or accuracy of these sources. These views and information in no way form a requirement, offer or recommendation to acquire or sell investment instruments, or undertake other transactions. We recommend that interested investors consult their personal advisers before making decisions based on this document in order to allow their individual investment targets, financial situation, individual requirements and risk profile, as well as additional information in conjunction with comprehensive advice, to be taken into account accordingly.

Responsible for the content:Colin&Cie. AGInvestment OfficeRigistrasse 36300 Zug

Author:Beat [email protected]

Disclaimer

MARKETS AND OPINIONS / FIRST QUARTER 2020 / IMPRINT


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Markets and Opinions Q1 2020 - Colin&Cie and Opinions Q1 … · MARKETS AND OPINIONS / FIRST QUARTER 2020 / REVIEW In EUR / market developments since December 31, 2018 as of December