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).
The money market allocation remained more or less unchanged vis-à-vis the third quarter. This position is slightly overweight.
We have not initiated any active changes to the inventory and continue to be underweight in this area. The fact that the amount of negative yielding bonds globally has declined by about a third since the end of August is only scant comfort.
During the course of the year, yields on 10-year government bonds declined across the board:
We have not made any changes to the Swiss equities position and remain neutral weight. The directly invested “Swiss Stock Portfolio” (SSP) achieved a performance including dividends of 24.1% during the calendar year. With 30.6%, the Swiss Performance Index (SPI) is ahead.
The benchmark, however, benefitted more than average from the extraordinary rise of the Nestlé stock (20.8% weighting in the SPI) delivering a fantastic 35% return. The other index heavyweights, Roche (+33%) and Novartis (+27%), also motored along nicely. Such a constellation of the three most important index constituents achieving on average above 30% returns is something of rarity. It has only happened twice in the past 20 years.
With our broadly diversified selection where the stock in the foodstuff company accounts for just 8.4%, it was impossible to keep up with the index. Apart from the above-mentioned names, the shares of Also, Sonova, as well as Vetropack, attracted positive attention in the SSP, with returns of about 50%.
In the long term, the performance of our value-criteria driven selection is quite respectable. Since 2012, the average annual performance of the SSP amounts to 15.7%, a result that beats the average benchmark’s performance of 11.6% markedly.
Since 2012, the total cumulative return of this strategy amounts to about 221%, while that of the index to 140%. The SSP figures bear transaction costs, whereas the benchmark index does not bear any costs. The “Strategy Certificate linked to the SIM Swiss Stock Portfolio Basket” (Valor: 36524524, ISIN: CH0365245247) achieved a performance of 22.4% in 2019.
Measured on the price/earnings ratio using the latest 12 months profit figures, most equity markets have become more expensive during the course of the year:
Our value focussed, directly invested “European Stock Portfolio” (ESP) achieved a performance of 22.2% during 2019, measured in Euro. The broad Dow Jones Stoxx 600 Index achieved a total return (price change plus dividends) of 26.8%, whereas the value style driven Dow Jones Stoxx 600 Value Index achieved an annual performance of 21.6%.
The value style gap alluded to in last quarter’s Investment Report has mitigated slightly during the last months. As the ESP rose by 18.7% during the September-December period, the broad market (DJ Stoxx 600) “only” managed a generous 10%. The marked rise of some British stocks like Persimmon (+51% in Euro), Legal & General (+47%) and Babcock International (+35%) is striking.
The clarification of the power structure following the last parliamentary election provided these attractively valued stocks with a massive uplift, further emphasised by the strength of the Pound against the Euro. Other European value stocks such as Siltronic, Aurubis, Randstad and Nordea, for example, were also re-discovered by investors during the last four months of the year, consequently rising markedly.
In the long term, the ESP displays a marked outperformance against the broad index. Since 1993, the ESP has returned on average 8.6% compared to the 7.1% achieved by the 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 about 894%, while that of the benchmark to about 583%.
Price/Book and Dividend Yield of major equity markets:
American equities hold a top position in last year’s ranking of best performing stock exchanges. Amongst the developed markets, it even ranks top. The Performa US Equities Fund employed by us beat its reference index MSCI USA Total Return by nearly 3 percentage points. The BB Adamant Medtech & Services Fund, covering the medical technology sector, developed pleasantly as well. We did not make any changes to the US stock weighting and with it, maintained its slight overweight position.
Equities Asia (excluding Japan)
The trade war between the USA and China, as well as the interim slow-down of the global economy, weighed heavily on emerging markets’ stocks. Notwithstanding, the benchmark, as well as the investment funds employed by us, achieved pleasing results of around 18%. We did not make any changes to the positions and with that, remained neutral weight.
After a bumpy first half of the year, equities of the Land Of The Rising Sun picked up pace during the second semester. The reference index closed the year with a generous 18%. The positions remained unchanged during the fourth quarter and are neutral weight.
Hedge funds, representing Alternative Investments in our allocation, were in the shadow of other asset classes during 2019. The trends on exchanges were too coherent, the volatility in general too low for hedge funds to be able to play on their strengths. With a plus of 8.7%, the global benchmark still brought in a decent harvest. Our positions also remained unchanged throughout the last three-month period of the year.
The gold market was characterised by the German prince of poets, Johann Wolfgang von Goethe: “To gold tends, on gold depends, simply everything! Oh, we poor people!” was the motto. Although the second sentence of the famous verse from “Faust” would have robbed hardly anyone within the investing community of sleep. The search for alternative investment opportunities with a low correlation to other asset classes, and for security, saw the price of the precious metal rise by about 18% during the year.
Quotes above 1500 US Dollars per ounce were last seen in 2013. Apart from private and institutional investors, several central banks figured as buyers in 2019. By all accounts, the central banks of China, Poland, Russia and Turkey were particularly active buyers. Our position remained unchanged and overweight in the fourth quarter.
Summary of our current Asset Allocation: