CIO Wealth Management
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Monday to Friday
8:00 a.m. to 6.00 p.m. (CET)
+41 58 283 71 11
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During counseling sessions, we often meet the need for staggered retirement. This differs from a pure reduction in workload. Many workers do not want to give up work from 100% to 0% directly. Most pension funds offer the option of partial retirement. In the case of partial retirement, retirement benefits (pension or capital) to the extent of the reduction already become due when the workload is reduced. In contrast to a pure reduction in workload. It is important that we carefully examine the tax implications in addition to the pension aspects. There are some differences between the cantons.
The rule of thumb is to first pay into pillar 3a and then initiate pension fund purchases. Pillar 3a is a private pension plan that is less heavily regulated, there are different conditions from different providers. In addition, you can keep several accounts and custody accounts and stagger the payment better. You can only pay into pillar 3a once a year. You can also no longer make up for a missed deposit. On the other hand, you can distribute your purchases into the pension fund flexibly.
On the one hand, you should know what budget you are expecting over the next few years. On the other hand, however, what proportion you need as regular income to be able to sleep peacefully. The regular income does not necessarily have to consist of pension income, because maybe a good friend or the neighbor did it. Of course, income from real estate or income from securities as described above is also conceivable. In the end, due to flexibility and tax considerations, the decision often turns out in favor of a mixed variant. We recommend using a solid income and wealth concept that can withstand one or the other crisis and is tax-efficient.
In such a situation, careful planning / advice becomes even more important because you have to make important decisions within a very short time. It is therefore very relevant to know at this moment what options you have at all in order to then set the right levers in motion, for example how to proceed with the pension fund assets. With an overview of your own long-term financial situation and a tailor-made action plan that shows you when to make which decision, you regain the necessary security.
Yes, it definitely matters. One of the biggest mistakes you can make is not dealing with the topic at all or only too late. Through early preparation, on the one hand, several options such as gradual retirement can be checked, and on the other hand, careful tax planning can lead to significant tax optimizations. The earlier you start, the greater the possibilities. In practice, unfortunately, we often find that many people only get advice when their retirement is imminent. Then it is often too late for a long-term, comprehensive optimization.
Let me give an example. There is a sunglass manufacturer and you are investing into sunglasses only. If next year is going to be particularly sunny, you will experience considerably good return. If it is rainy, however, you will lose. If you are additionally investing into an umbrella manufacturer, for example, you can minimize risks by adding diversification in your portfolio. Hence, investing by means of diversification can also minimize the risk in times of COVID-19. Taking this into perspective of a balanced portfolio, which consists of e.g. 55% government bonds and 45% equities, you see that the S&P 500 has a significantly higher maximum drawdown in the past months than a balanced portfolio.
Today, we do not know how the markets will react, if a second coronavirus phase occurs. The volatility can return to markets easily and quickly as we have experienced during the first coronavirus phase, but we cannot predict, how the markets will react. Will consumers spend as much money as before the coronavirus? Will investors invest as much as before the virus? We cannot say for sure.
First of all, panic selling results in unfavorable market prices. E.g. in the past months, the S&P 500 experienced a +27% growth in a very short period of time; investors who have sold their investments during crisis times have missed this potential market return. If we look at a 10-years horizon between 1999 and 2019, an investor who always stayed invested during this times experienced a return of more than 100%. Missing however just the best 10 days during this time frame would significantly reduce the return to 23%. Missing around 40 days would have even brought losses.
We have always talked about a simple balanced portfolio, however if you diversify more in various asset classes, you may increase your return. In order to diversify smartly, you need to consider for example the reference currency. Why is this important? Inflation rates in different countries are different, in CH significantly lower than in USA. Consequently, for the investor to achieve real return in CH and USD, the investor has to take more risk in USD than a CHF investor. Also important to understand is your investment horizon, your liquidity needs and also other investments. In particular illiquid investments such as real estate should be taken into consideration. Your whole investment portfolio and your investment risk should be analyzed in order to smartly diversify across assets.
The best way to deal with uncertainty is with investment diversification. The diversification of the portfolio and the risk level of the investment should match the individual risk tolerance. If the portfolio matches the own risk tolerance, meaning the investor can bear the with the book value losses, staying invested is the right approach. In addition, you should believe in the concept that the economy generates value, which is distributed to investors that hold individual asset classes. If you would like to discuss your question more distinctively, please do not hesitate to reach out to us.
As with the first wave, a second wave can hit the market very quickly. As soon as the first signs of higher levels of infection can be seen in countries where the lockdown has been relaxed, the markets will react quickly. But you can not analyze much, it is more important to pay attention to "sentiment indicators", how much panic there is, for example, in the market and how high the number of cases is. These indicators could reflect a good turnaround factor.
The question is whether you want to invest more in certain countries. However, it is much more important to know which sectors are dominant. Pharmaceutical companies or Nestle make up 50% of the index in Switzerland, and pharmaceutical companies see an upswing in times of the corona virus. Even the largest tech companies based in the USA are experiencing a major upswing due to the lockdown and the exploding home office work situation will have a major impact on the USA. In general, it is likely that the stock markets that were already strong before the virus are still well positioned after the crisis due to better business models of the companies.
The market already distinguishes and reflects enormously which sectors are negatively affected and which sectors are experiencing an upswing due to the corona virus. We cannot fly, we cannot go to the restaurant, we cannot make up for the vacation planned in April. This is already reflected in the stock market. The tech companies are experiencing an upswing, while companies from the travel industry, for example, are experiencing a slump. At the country level, it can be said that the countries that have come into the crisis relatively strongly are coming out of the crisis strongly relative to others. Norway will continue to reduce debt while the debt crisis in Italy will continue to worsen. At the moment the market reflects that the virus is not as dangerous as some suspect. If the virus gets worse now and we are faced with an even worse lockdown, the markets were very optimistic.
According to research the virus mutates very slowly, which is crucial for the development of a vaccine. However, Vontobel refrains from such questions and asks you kindly to ask the BAG directly. Vontobel is happy to answer economic-related questions at any time. We thank you for your understanding.
Observing the positive development of the financial markets recently, we do not see a direct reflection of a second wave of the corona virus. Both central banks and governments have launched initiatives to keep businesses liquid, and others to stabilize the unemployment rate. Economic support from governments and central banks allowed the stock market to recover quite quickly. Now the question is of course what happens when news about the second wave would arrive from Asia. The scenario could possibly repeat itself, China will be shut down, there will be no supply or demand. However, we believe that in a theoretical second wave, governments are better prepared and can react more quickly with the appropriate measures.
In our opinion, long-term oriented investors should stay invested and diversified across different asset classes. As we suspect it to be an event-driven crisis you need to ride through this type of volatility. In this bull market there is a wide dispersion of returns, in all asset classes, not only in equities but also credit, gold, commidites in general. The key is therefore proper diversification.
There are two types of crises, an event-driven and systemic-driven crisis: In an event-driven crisis you need to only make it through the event and the crisis is over with no huge long-term impact. Systemic means that something in the system is wrong. Now with COVID-19 we do not see a systemic crisis, but when measures are not enough to trigger high consumption and instead we see mass bankruptcies around industries and high unemployment rates, the coronavirus crisis could become a systemic crisis. We see however low probability that this will happen and expect 2021 to be a growth year.
There is definitely a recession, we should not deny it. But there will be governmental support, there will be measures taken to ensure no mass unemployment wave or major bankruptcies. The question here is: How far do we have to look until we get out of the recession? When is the light coming? We expect 2021 to be a quite positive economic year after the rollercoaster in 2020.
We currently have the same debt level as we had 75 years ago. However the reason for the high debt levels are very different. Back then, the US and UK had to finance expensive war machineries, which they financed through building up dept piles. Now we tried very hard to bring debt down but COVID-19 hit us hard which causes struggles again. We now have a 120% dept to GDP ratio, which is equal to the debt level after World War II. Putting it into perspective means that every person in a company would need to work more than an entire year without receiving any salary to pay off those debts, while the company could not generate any profit.
Yes, it is us, global dept is public debt. This means that if we do not work it off and bring it to lower levels now, the next generation will start into its career and still pay debts from the past. If you look at the debt levels and the interest rate you recognize the low rate for paying interest which means that paying off the debt ist not an issue. However, measures must be initiated to pay off the debt. One way could be austerity measures which would however be deficit-cutting, enforce reduced spending, and slash public services to avoid default. Another alternative is inflation, you could create inflation and lower debt. In fact it is already happening now, everytime the government is now saving an airline from bankruptcy and internalizes it. The central bank will print money to pay off the debt caused by the company, and eventually the global debt levels would decrease.
The key term here is: Active portfolio management. The entire world has drastically changed, the profitability of multiple sectors such as travel, retail, commodities, automotives, have changed. Therefore you should not stay invested in portfolios or indexes, which have not made any required adjustment since the end of 2019. Active management in fixed income markets can make a hudge difference in total return and income will be the most scarce commodity in the next decade.
The amount of aid from governments is excessive. The help from central banks as well and it is amazing how quickly they reacted. However, the aid will not find its way quick enough to everyone. The vast majority suffering will be companies with a BBB or C rating. We expect a minimum of 20% of downgrades and the peak of defaults are likely to be end of this year, or Q1/Q2 2021.
Rather wide bid-ask-spreads have now existed for a decade. During March this year, however, when people realized they want to have liquidity, the bond market felt into a vacuum, it was impossible to trade. There did not exist a two way market during this time period. At the end of March it was more challenging to buy assets than to sell. But the market settled down a bit into a 1% spread.
In general, fixed income is not something you should do on your own. You should have a manager who makes sure that your portfolio has an appropriate amount of bonds. If you buy a small number of bonds and one bond loses and you do not have enough diversity in your portfolio, you may have a significant loss. Therefore, you need to hedge against this risk with a recognized and active bond manager who can ensure a right combination of liquidity and credit.
Find companies with a strong balance sheet, who can stand a deep recession. In addition, the transparency on future earnings is also significantly important. For example the retail market oftentimes does not satisfy the transparency in future earnings. You should ensure that you keep your bond portfolio at high ratings and do not invest into companies with CCC rating. Those will likely not stand the recession.
The entire oil industry is under extreme pressure due to the excessive oil production. Saudi Arabia can offer the lowest prices ($ 15 / barrel), followed by companies like Shell / BPs / Total ($ 20-30 / barrel). Shale oil feels the pressure most because the oil has higher production costs, the investment in oil generation is higher than with other oils. You therefore have a higher level of debt and need a robust cash flow to pay debts. What would have a positive effect on the overall industry is if bankruptcies in shale oil arise and production is reduced as a result. One would speak of a so-called clearing process. Multimajors like Shell / BP, etc. can live longer with lower oil prices, they can go up and down with the production at will, they have stronger balance sheets to withstand low oil prices for a certain time. In the long run, however, the current oil price will not work for anyone. The oil price has to settle at USD 30 / barrel, otherwise the oil industry will not work.
A low oil price may trigger bankruptcy, put pressure on balance sheets and trigger an increase in unemployment. An oil price collapse is difficult enough. But the lockdown effect of the COVID-19 comes on top, so the drop in oil prices is even greater. Consequently, we see a decrease in demand for raw materials while a production rate which has remained very high.
Trump will definitely take steps to protect his Texas / Oklahoma electorate as we are currently in an election year. IF he does not protect this industry, he may not reach the critical electorate. How exactly he will react is still unclear. He has already announced tariffs, but it is unclear how efficient such tariffs are. The state could possibly use a reserve with storage capacity, buy the oil and store it there. In any case, this measure would help stabilize prices in the short term.
"Why should we invest in solar now when oil is so cheap" - this question is justified. The sums allocated for sustainable resources will however not change. Large investments continue to be made in wind and hydropower. Structural changes within energy and energy markets are more likely to be seen when the demand for gas increases. But structural growth to sustainable energy sources is unstoppable.
Two factors are important to consider. There was a demand shock due to the corona virus. Before COVID-19, approximately 100 million barrels of oil were consumed per day, with daily increasing demand. Due to the current market situation, there is a 1/3 lower demand, which has a huge impact on the oil industry. There was however a double effect, because in addition to the demand shock, the OPEC agreement was canceled. The previously agreed production cut was reversed so that Saudi Arabia and Russia continued to manufacture a lot of oil. If the consequences of COVID-19 and the cancellation of the OPEC agreement occur concurrently, such scenarios as for the WTI price occur. Saudi Arabia and Russia have now decided to cut 10 million barrels a day of production, but such reduction will never be enough to take the excess capacity out of the market.
There will be a lot of secondary effects on other industries. However, if you look at the long-term perspective, oil prices for 2021/22 will not collapse. A recovery can be expected in the long term, since the problem is largely due to the lack of storage space. The low oil price also has positive effects on some industries, for example plastic production has much lower costs. China is also experiencing a positive effect because energy prices have dropped and China is not producing its own energy. In the automobile industry it cannot be said in full whether it has a negative or even a positive effect. The lower gasoline price leads to higher demand and a higher car usage in the United States. Seen objectively, it is a "zero sum game" because there are winners / losers as always.
All raw materials are connected to the global GDP, these have so-called "boom and bust cycles", but in different lengths. An oil project from a geologist's desk to oil production takes 6 years and of course takes longer than, for example, agricultural raw materials. The coming recession will have nevertheless an impact on the entire raw materials market. From a fiscal perspective, however, there is an opportunity for recovery because future measures will be infrastructure-intensive, which in turn requires raw materials, so that the market can recover a little.
It is important to distinguish between two pricing approaches for oil. One pricing takes place in Cushing, Oklahoma, where many pipelines come together. They combine the pine oil from the USA, but also Canadian oil from Alberta. They collect in Cushing, where they are stored and bought by the refineries / ports to be exported or converted to diesel / petrol. The oil . Then there is Brent, which is oil from deep sea production such as Shell and BP. Brent is the determining price for what is produced from the deep ocean. Brent mostly has cash execution and no physical security. What is particularly important is that Brent and WTI carry out different pricing. Because of a cash execution model at Brent, for example, investors do not have to assume that they have to physically accept the oil.
Gold is a good hedge for bond investors as well. However, bond investors will not use gold primarily to reduce volatility given the lower risk profile of this asset class. A key risk which bond investors face however is inflation, given that bonds typically provide a nominal return. This is why bond prices sell off in times of heightened inflation. Gold on the other hand increases in value once inflation increases given its safe haven properties. Therefore, by adding gold, bond investors can hedge inflation risk in their portfolio.
Since the abolition of the gold standard, the importance for central banks to hold gold in order to manage their currency has declined significantly. Exceptions however are central banks, in which currency investors lost trust. By increasing their holdings in gold this trust can be regained. More recently, some central banks, such as the central banks from China, Russia, Turkey, have added to their gold reserves in order to reduce the dependence of their currency from the USD.
Given gold’s historic role as a store of value but also as a currency, gold has gained special status among investors when compared to other metals. This explains why gold is viewed differently versus other precious metals, such as silver or platinum, which historically have never been widely used as a currency. The differentiation in view is even more pronounced, when comparing gold with industrial metals, such as iron ore or copper. These base metals have not been used as a store of value or currency in the past, given their availability in larger quantities. For these metals, commercial companies rather than investors represent the largest share of physical demand. Their demand fluctuates in tandem with business activity. As a result base metal prices fluctuate more strongly and represent no safe haven in crisis time. Summarizing the above, the key messages in gold do not hold to the same extent for other metals and these are therefore no substitute.
Emerging markets have a growth dynamic and experienced considerable economy reformations in the past. For example, the Brazilian population is actively supporting the health reformation, reflecting the dynamic of change to the economy, which we already experienced and will experience in the future. The COVID-19 crisis will be causing damage because those markets usually do not have a safety network, however, this should impact specifically the short-term. In the long-term the markets will go back to structural growth dynamics and the risk related to investments in emerging markets are compensated with a stronger balance sheet and higher yield.
the question is difficult to answer in a general manner. During the last years due to the technological developments, it has turned very capital intensive to develop Chips and there are only a few producers left from Processors (Intel for example) and Memory Chips (Samsung, Micron).
Most of the Chip Designers let their chips be produced by Foundries (TSMC for example) instead of producing themselves. As they are very good and very bad “fabless” chips producers, it makes little sense to have a generic opinion on this. It depends a lot on the market segment in which they are active (NVidia in the Gaming industry is a famous fabless example). The dynamic with the chip producers with own production is strongly influenced by Demand, Inventories and Pricing and one needs to master the cycle.
To what extent the Euro Zone will be impacted by the COVID-19 crisis depends also on the measures from the ECB. One of the factors to be taken into consideration is whether or not there will be an agreement of a centralized debt for all countries. At the moment, the negotiation within the EU is tedious and difficult. Potentially there will be a patchwork agreement and all countries will have access to financing. Just recently, Christine Lagarde pointed out that the ECB is not responsible for keeping debt spreads out of the agreement. This could have a negative economic effect on the dislocation of geopolitical power and further spread of the rich and poor.
This is hard to define. The recovering phase will not be what we define as normal. What will happen is that you selectively see countries after the easter break to loosen up their coronavirus-related restrictions. An example is China, they did not go to completely normal after the lock down got loosened up, the citizens are all wearing masks, which are in some regions compulsory and you have stricts limitations in numbers for visitos in the shop. How quick the infection rate decreases will decide how fast companies will go back to their business as usual scenarios.
There are 3 basic criteria to take into consideration. First, the balance sheet in the past. A strong balance sheet is an indication of a healthy and stable company. Second, the business model on one side and the market positioning on the other. As a third criterion, you should ask yourself the question, is it a company that leaves value? Because inherent value creation can also increase the share price.
The duration of the crisis is relevant. The CH had years of government surpluses, which is now having a positive effect on the current situation and thus protecting the CH from a debt crisis. In debt-indebted countries like Italy, the risk of a debt crisis increases, but it is difficult to estimate how much the risk will increase.
There is a lot of pressure on currencies. However, the SNB will try to advise and defend CHF 1.05 / eur. If the pandemic recovers unexpectedly faster, the EUR could have upside potential.
Short-time work in Switzerland has already been increased from 3 to 6 months and the 10-day registration period before short-time work has been lifted. If the crisis lasts longer, the CH can extend the short-time working hours.
The duration of the crisis is important. The US expects the crisi to last 4-5 months and will support with assets equivalent to 11% of is GDP. If the crisis persists, the support that is currently promised is not high enough. In the United States, the first unemployment claims were also spoken last week, which may not have been taken into account in the current pandemic plan. Furthermore, the countries should always be considered individually. Italy has promised support as high as 0.9% of is GDP, which will not be sufficient to save the country from the crisis in the long term.
The epidemic will have no causal impact on insurance companies. In the case of business interruption insurance, it must also be checked in the individual contract whether the insurance will cover the damage, since a failure due to an epidemic was not clearly taken into account in the contract as the reason for the damage. In addition, it must be checked whether reinsurance is in place, which would possibly take over the damage.
The oil industry is heavily dependent on prices. The trend towards sustainable energy is set. However, if the price of oil is low, the trend will slow down. However, a fundamental transition / changeover to sustainable energy cannot be stopped. So the question is how quickly the trend is implemented and how high the political will is.
Low interest rates have a negative impact on banks. Banks are intermediaries between the savers and the economy; however low interest rates stop banks from continuing their business. Central banks know the risk of too low interest rates; European Central Banks such as SNB and ECB did not adjust their interest rates. Consequently, the current situation will not become worse in the future.
The German government has enabled a structural deficit above the 0.35% limit. The fiscal reaction could reach above EUR 600 Bn.
Earlier this week, President Trump's government proposed to Congress a USD 850 billion stimulus package to support businesses and household. The measures represent a support USD 2 trillion or almost 10% of national GDP.For comparison: The “Emergency Stabilization Act” applied in the context of the global financial crisis in 2008 was USD 700 billion. The Fed announced review measures on Monday with unlimited purchases of government bonds and mortgage-backed securities from agencies being part of it. The Fed supports loans and credits for corporates and liquidity processings for outstanding corporate instructions. In addition, the flow of credit to consumers and businesses should be ensured. As of March 24, 2020
The European Central Bank (ECB) has announced a new EUR 750 billion bond purchase program and is “determined to play its part in helping all Eurozone citizens in this extremely difficult time”. This complements economic measures such as a negative deposit rate for commercial banks of minus 0.5%, EUR 20 billion per month for the purchase of existing bonds and up to EUR 2.3 trillion for bank loans. Meanwhile, the European Union has agreed to relax the rules on state aid to companies by December 2020. European governments can grant grants, tax breaks and upfront payments of up to EUR 800,000 to every company affected by the crisis.
Finally, the European Commission plans to suspend all fiscal rules of the “Stability and Growth Package”. This will give the member countries the green light to increase debt in order to strengthen their local economy. As of March 24, 2020
The UK announced a comprehensive package that included a minimum GBP 330bn state-backed credit guarantee program (approximately 15% of GDP), an extensive employment promotion program, airline and airport bailout, corporate tax relief and a three-month “mortgage vacation” . As of March 24, 2020
CIO Wealth Management
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