The Market At a Glance: "Animal"

Indeed, for many observers, the financial markets looked like a battlefield in February. After a stellar beginning of the year where bulls (investors who believe that markets are poised to rise) almost made us forget that global economies were facing headwinds, bears (investors who think markets are headed downward) were back and more motivated than ever. The results? Most of the stock markets were down, rates were up and for once, digital assets were happy not to be the center of attention. In a nutshell, an aftertaste of 2022.

Was there a particular economic data point or piece of news that triggered that sell-off? Not really. The reasons to fear remain the same: a stickier inflation than expected and a cohort of central banks decided to fight it at the risk of pushing economies into recession. The reasons to hope remain the same too: a resilient job market, consumers that continue to consume and good news from the East especially Chinese companies. Even the gossips remained the same: Elon Musk regained its title of the world’s richest man against Bernard Arnault (seriously, who cares?).

But that’s the beauty of the financial markets, one of the only places where you can expect the same causes to produce different results. And from time to time you have these clashing narratives and divergence of opinions that translate into higher fluctuations. To quote Benjamin Graham: “in the short run, the market is a voting machine” and right now the topics of the election are particularly difficult to grasp for most investors for several reasons:

• Inflation is a complex variable. Ask ten economists what caused the recent price increase and you’ll get ten different explanations. Some believe it is caused by monetary and fiscal policies, others by supply shocks others by longer-term force like demographics.

• The action is ongoing. Every economic agent, from central banks, to consumers to companies, is adjusting to inflation. And so are investors. It adds to the complexity.

• If inflation is here to stay and growth is poised to decelerate in all economies. Does it really mean that investors will sell all their assets or will they just change their expectations?

If you find yourself unable to assign probabilities to a particular economic scenario versus another (i.e. you don’t know what to vote) then consider them equally probable and prepare your portfolio and mindset accordingly: both for good news and bad outcome.

How to do this? Essentially by aiming for greater diversification. Be it internationally, by considering other countries into your mix of investments, or across different asset classes. Higher rates make certain asset classes like bonds attractive again.

Demystification room

Have you ever wondered what the difference between passive and active investment products was? Let us explain.

First, we need to introduce the concept of benchmark:

A benchmark a set of securities that represent a particular segment of the market and for which you can measure the performance. For example, the SMI is an index composed of the top 20 Swiss listed companies and is often used to assess the performance of the Swiss economy.

We generally talk about passive investment to describe a product whose objective is to replicate the composition and performance of a given benchmark. This means buying the underlying assets that a benchmark buys, and selling the ones that it sells. Exchange Traded Funds (ETF) are good examples of passive investments.

On the contrary, active investment products often refer to products actively managed by an investment professional who is making active decisions on the constituents of the funds, with the objective to deliver extra performance.

Let’s talk wealth

Our Senior Banking Specialist Jacques Sale, and Business Development Lead, Mattia Scolaro answer some of the questions you asked:

How is “Private Banking” different than normal banking?

Mattia: That’s a great question to kick things off. Wealth management can be complex, and it’s part of our job to make things clear. Private Banking refers first of all to a set of services dedicated to managing clients’ wealth with the highest standards and personalization. This could include discretionary and advisory solutions (more on this in the next question). A private banker aims to understand their client’s financial situation, needs, objectives, and future life ambitions. All this information is analyzed before offering a tailored financial and investment strategy, to offer the best wealth management solution.

As you can see, private banking requires the understanding and empathy that only another human being can offer. It’s why private banking relationships are often managed with the support of an experienced banker. It is also worth noting that in Switzerland, and around the world, clients require a sizeable minimum deposit to qualify for most private banking services.

What investment strategies do Swiss asset management services offer?

Mattia: Banks usually offer 4 to 5 strategies that correspond to the client’s risk profile. Each strategy is composed differently. The result of this composition is called asset allocation. For example, if you have a more aggressive strategy – one that aims to offer a better return – it would be advisable to have more equities in your asset allocation (https://www.i-vest.ch/asset-class). And you would be advised to stay invested for a longer time.

At Alpian, we offer an indefinite number of strategies to ensure that the client’s portfolio is fully tailored and aligned with their needs. This approach tends to differ from traditional offerings, as Alpian creates a unique strategy only once the client completes his/her investor profile.

Can I customize my investment portfolio?

Jacques: Generally, to be able to do that you have two choices:

• Invest at least several million into a mandate, or

• Pay a higher fee for the customization.

The first case is typical of a private bank. Traditional banks usually offer you a standardized strategy matching your investment profile. Often, they assign you a profile for which a standard pre-build strategy is already in place. And these pre-built strategies cannot be adjusted to your preferences.

Of late, some investment solutions are shifting away from this cluster approach, trying to offer more tailored strategies to their clients. After all, every client is different and all of them have different goals and objectives, and interests. So, don’t they deserve a personalized strategy?