Yves Bonzon, Group Chief Investment Officer at Swiss Wealth Manager, Julius Baer talks to Gulf Insider on how the pandemic impacted secular trends and opportunities going forward.
Did you see a major shift in trends from 2019 to 2020 due to the pandemic?
The pandemic did not as much shift secular trends as accelerated them, and substantially at that. When we first formulated the key themes for this decade, we hypothesized the end of the neoliberal era was close and envisioned a new unorthodox policy template which places a greater importance on fiscal stimulus and debt monetization, as suggested by proponents of Modern Monetary Theory (MMT).
The immediate policy response to the Covid-19 crisis was taken right out of that MMT policy toolbox – with governments rushing to implement massive stimulus programs, backed by central banks annihilating rates to their lowest levels, while pumping liquidity to support asset prices.
Recently, the Federal Reserve Chairman, Jerome Powell, confirmed that the central bank will not even think about raising rates until they see the white in inflation’s eye. This is an extreme departure from the old policy paradigm.
How has Covid-19 changed how you look at strategic asset allocation?
The Strategic Asset Allocation (SAA) is the backbone of the investment process, and its role has been reinforced during the pandemic.
First, the sharp market decline in March 2020 and whiplash recovery that followed made abundantly clear just how costly it is to flee to cash when turmoil shakes markets. The SAA provides an anchor, an allocation that investors can rely on in volatile times while staying invested.
Second, political forces are going to play a growing influence on markets, blurring traditional market signals. In this environment, tactical moves are extremely hard to implement in a profitable way.
As CIO, were you able to counter the impact of an extraneous shock such as the virus and successfully manage client portfolios?
The Covid-19 recession was the first externally triggered global recession since WWII.
We stayed invested throughout the volatile environment in spring 2020, and once the waters calmed, added to risky assets that were to profit from the generous liquidity conditions guaranteed by central banks. This has turned out to be a rather successful strategy.
In the current Covid-19 situation, how do you recommend investors act with regard to their portfolio?
Vaccination programs around the world are gaining considerable momentum. An important factor to take into account is the fact that vaccines based on mRNA technologies can be quickly adapted to counter these mutant variants. Overall, the global recovery remains on track and we remain invested.
What secular themes should investors focus on in the next decade?
The next decade is all about the second wave of digitalisation – data and AI proliferating and disrupting all kinds of industries. One area that is being profoundly affected and has, in our view, substantial growth potential, is life sciences.
Another fundamental change to ‘traditional’ global asset allocation is China. The Chinese economy is set to become the largest globally this decade and it will not be enough, going forward, for the global investor to monitor the U.S. financial and economic cycle only.
Finally, electricity and cleantech will be everywhere, from singular vehicles to entire cities.
What major sectors will reap the most benefits in 2021?
The rotation from ‘covid winners’ to ‘covid losers’ that accelerated in the first quarter of 2021 is quite advanced and entered a consolidation phase in late March. Going forward, there still might be some upside to the trade, but returns will be much more muted.
In the long-run, for value-tilted stocks to truly outperform, inflation and GDP growth need to be back for good. In our view, high-quality secular growth remains the cornerstone of a long-term oriented portfolio.
Finally, on a personal and professional level, how has the covid-19 pandemic impacted you?
After 31 years in business, unexpected change of circumstances is an opportunity to reflect on the way I work and the way we manage the business.
For the CIO specifically, such market dislocations are an opportunity to make a difference and demonstrate to our clients the value of a structured and time-tested investment process.
During good times, it is sometimes not straightforward for clients to understand the value they get from doing business with true experts.
Alireza Valizadeh, CEO and Market Head, Julius Baer Dubai & Bahrain, Julius Baer (Middle East) Ltd
Back to basics
The traditional private banking model has undergone a major evolution over the last couple of decades. Our main focus is on generating and preserving wealth for our clients.
Though digitalisation is increasingly playing an important role to make things more accessible to clients, the core of our business rests in our people. It is through the trust we build with care, passion and excellence that we are able to enhance our value proposition across generations.
A good example is our discretionary mandates which allow for end-to-end handling of individual client portfolios based on our CIO House view. This is truly where our expertise comes into play and we are able to showcase the success of our strategic asset allocation.
Our litmus test was the pandemic, where we supported clients to stay invested while helping them navigate through the increased levels of volatility in global markets.
We see a growing focus on topics such as succession planning that have come to the forefront given the nature of the pandemic. This has provided us with an opportunity to get to know and understand the needs of the next generation and help us assess how we can bridge the gap between the old and the new.
Another topic which has gained traction is the growing spotlight on sustainability. We also have seen increased interest in our investment framework centred around our next generation investment philosophy that looks at leveraging mega trends for structural growth.
We believe that investments into AI, digital health, shifting future cities, and e-mobility will continue to gain prominence in the coming years.