Quarterly investment letter | 3rd quarter 2022
Here’s our summary of the markets
- Rising inflation pressures forced central banks around the world to reverse the loose monetary policy. A faster than-expected tightening of the financial conditions weighs on the global economy.
- Increasing uncertainty about a possible recession in late 2022 or early 2023 could keep pressure on risky assets. On the labor, household, and corporate side, however, the US economy is still sending some reassuring signals.
- In Europe, forecasts for inflation and GDP growth have been revised upward and downward, respectively. As a result, the ECB is forced to end the era of negative interest rates in 2022.
- Fiscal stimulus in the form of higher defense spending, support for safer domestic/regional supply chains and faster energy transition (accelerated by the Russia-Ukraine conflict) is a well-received support to bolster employment and ultimately prevent a severe recession.
Market volatility will remain elevated given the uncertain economic backdrop we have to deal with. Therefore, we hold above average cash levels to protect capital on the one hand and to remain flexible on the other hand, should attractive investment opportunities emerge. At current valuation levels and from a risk/return perspective we prefer selective credit over equities. Hence, we maintain our small structural underweight in equities. At the moment, we consider short-term HY bonds as particularly attractive and hold duration risk only as a portfolio diversifier. It is an environment in which an absolute return approach is preferred vs. a classic relative value approach.
Don’t miss our complete 3rd quarter investment letter, which includes a more detailed look at the regional macro-economic backdrop, market consensus forecasts, and more
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