At its meetings, the Investment Committee decided on the following changes to the asset allocation for medium-risk balanced Swiss Franc portfolios, not subject to client’s restrictions (mandates in different reference currencies at times display different nominal weightings and weighting changes):
We have left the money market weighting in the portfolios broadly unchanged during the past quarter. With that, it remains at a near neutral weighting when compared to our long-term strategic allocation.
Faced with the low levels of interest rates, it is difficult, respectively, almost impossible to identify suitable opportunities of reasonable quality for investments. The development of yields and spreads between the various country and quality tiers illustrates the sheer desperation of investors. An imminent change in this situation is currently not in sight.
During the final quarter too, we left the Swiss equity allocation unchanged. The large part of the gains occurred during the first six-month period of the year, whereas the second half was somewhat quieter. Our selection of Swiss equities composed according to value criteria, the ‘Swiss Stock Portfolio’ (SSP), achieved a total return (including dividends) of 22.2% during the year. Its benchmark SPI (total return) achieved a 19.9% total return during the same period. With that, the SSP achieved an outperformance of 2.3%
Since 2010, the SSP’s mean annual performance amounts to 12.8% p.a., clearly beating the 8.4% achieved by its benchmark. Since 2010, the cumulative total return of this strategy amounts to 161.5%. The SSP figures are net of transaction costs and withholding taxes. The benchmark, however, does not bear any such costs. The certificate we launched in July this year, the “Strategy Certificates linked to the SIM–Swiss Stock Portfolio Basket” (Valor: 36524524, ISIN: CH0365245247), which mirrors this equity portfolio 1:1, rose 1.3% since its launch in early July.
In 2017, European equities were torn between the markedly improving economies and the rise of the common currency. Where the first provided a tailwind for corporate profits, the latter produced quite the opposite for export-oriented businesses. Bottom line, the positives prevailed. As we had achieved a markedly overweight position by autumn, we reduced the positions by 3 percentage points in the fourth quarter. We are now neutral weight.
The directly-invested ‘European Stock Portfolio’ (ESP) achieved a 17.8% return in 2017. The DJ STOXX 600 Index achieved only a return of 10.6% during the same time span (both values are total return, i. e. incl. dividends), yielding an outperformance 7.2 percentage points to the ESP. Compared to a pure value index that more closely reflects our investment approach, the outperformance even amounts to some 8.1 percentage points. Since 1993, the mean annual performance of our equity selection amounts to about 9.2%, compared to the 7.2% of the above-mentioned general benchmark. The transaction costs, as well as taxes withheld, are deducted in ESP figures, whereas the index is calculated without bearing any costs. The cumulative performance of the ESP since 1993 amounts to 885%.
American equity markets went from record to record in 2017, and with that, caught the media’s attention. We have not made any changes to the position, but are slightly overweight due to past performance.
Equities Asia (excluding Japan)
Asian equities had a particularly good run in 2017. We did not make any changes to their weighting during the fourth quarter period. Far-Eastern stocks remain unchanged at neutral weight.
Measured on the price/earnings ratio using the latest 12 months profit figures, some of the equity markets have become dearer during the past year, while others have become more attractive:
In 2017, the sun literally rose on the Japanese exchanges. The fund employed there slightly outperformed the market as a whole. We have not made any active changes to the position, but due to prices rising over 20%, we are now slightly overweight.
The proceeds from the reduction in European stocks – about 3 percentage points of the portfolio – were added to alternative investments during the final quarter. We decided on a further investment product there, the Franklin K2 Alternative Strategies Fund from Franklin Templeton. It is worth pointing out that this is not just a fund of hedge funds, but the underlying strategies are held at Franklin Templeton in managed accounts run by the specialists and as such, they may be examined in detail at any time. Compared to the world equity index, the fund has a very low correlation, as well as a low volatility, which makes it appear attractive. The fund is available in several currency-hedged classes and offers daily liquidity. With this step, the overall allocation to alternative investments has increased to about 7.5%.
No changes have been made to the gold position. It continues to serve unchanged as diversification to other (interest free) currencies, as well as other asset classes, and gave satisfaction with a return in the low double digits.
Summary of our current Asset Allocation: