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LGT Asset Allocation – April 2020

April 1, 2020

In the current environment, we remain committed to our strategy: focus on flexibility and liquidity, no experiments. The portfolio should include solid equities with a high quality level. In the bond sector, qualitative corporate bonds offer attractive potential again in the long term.

Asset Allocation LGT Private Banking Europe

Stimuli worth trillions of dollars to fight the negative impacts of the global pandemic

The current pandemic, triggered by the novel corona virus (Covid-19), has not only taken hold of the capital markets, but is also having a massive impact on the everyday life of people worldwide. The duration and consequences of the pandemic are difficult to assess, and it is hard to predict how the new “reality“ after the corona crisis will look like ­ be it for the individual or for companies. But one thing can already be said today: Global central banks and governments have now done the “big scoop“ and the new money supplies are enormous.

Both the Fed and the ECB have announced discretionary programs. Fed President Jerome Powell has propagated that the Federal Reserve would not run out of “ammunition “. At the same time, the G7 nations have almost competed with each other with their respective Covid-19 aid packages: The US has put together a package worth USD 2 trillion, which represents over 10% of national GDP. And Germany has announced a package worth EUR 750bn, equivalent to almost 20% of German GDP. All politicians have made it clear that “more funds are in the pipeline“ and that these would be used if necessary. These sums are enormous, but for a sustained recovery, the market needs more robust data on Covid-19 infection rates and their implications for the length of economic shutdowns.

In this environment, we remain committed to our strategy and are not experimenting. The focus is on flexibility and liquidity. For a balanced asset allocation, we recommend an overweight in liquidity and gold at the expense of an underweight in fixed income (no high-yield investments). After rebalancing (building up equities), the equity ratio is set to a neutral ratio, with the focus on quality and sustainable attractive equity securities.

Equities: adding solid securities with a high level of quality to the portfolio

The global pandemic has put equities under massive pressure. Within a few weeks, investor sentiment has completely changed from complacency to risk aversion. Although we have seen prices drop by around 30%, valuations have only just reached a neutral level, as future profits have completely disappeared and we have to assume a severe global earnings recession. The medium-term impact of the pandemic on individual business models and value chains can only be vaguely estimated from today's perspective. Nevertheless, it can already be said that US companies will have to fight a tough headwind when it comes to share buyback programs financed by leverage. We expect that the focus will increasingly be on quality: solid balance sheets and conservatively financed business models that produce a high free cash flow. In short, selection ­ the focus on individual industries and stock picking, which has almost been forgotten ­ will probably become fashionable again.

Fixed Income: qualitative corporate bonds offer attractive potential again in the long term

Government bonds have also come under pressure in recent weeks and have no longer functioned as a “safe haven“ as usual. The reasons have to do with market liquidity, which was no longer available in all asset classes due to margin calls and a reduction in leverage. As a result, liquid collateral ­ such as Swiss or German government bonds ­ had to be liquidated in some cases in order to meet portfolio requirements. In this phase, even high-quality corporate bonds came under pressure. These have now returned to a yield level that represents attractive potential for the long-term investor. We continue to advise against investments in the high-yield area and would even further reduce positions into strength phases if the market recovers. As with equities, the focus in the bond sector is also increasingly on selection. Right now, it is not the time for any experiments.

Alternative investments: using dollar strength for downsizing

The US dollar has gone through a real rollercoaster ride in recent weeks. The fluctuations due to the bipolar environment ­ safe haven against liquidity needs ­ certainly contributed to this. We expect a volatile environment in the coming weeks as well. However, we would clearly reduce the greenback into strength phases, as government debt on the one hand and the lack of carry trade on the other are likely to put the US currency under pressure in the medium term. Gold, on the other hand, should be one of the big winners in the long term due to the exorbitant stimulus packages, respectively the monetary and fiscal bonanza.

What we like What we dislike

Equities

US value stocks

European equities

Healthcare

Dividend stocks

Asia ex-Japan

"Value traps"

Fixed Income

Short-term US Treasuries

Investment grade bonds

Swiss government bonds

EU government bonds

High-yield bonds

Long duration

Alternatives

Gold

Listed Private Equity

 

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Author: Thomas Wille, Head Research & Strategy, Email: thomas.wille@lgt.com
Editor: Natija Dolic, E-Mail: natija.dolic@lgt.com
Source: LGT Bank (Switzerland) Ltd.

Risk Disclosure (Disclaimer)
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Impressum
Herausgeber: LGT Bank (Schweiz) AG, Glärnischstrasse 36, CH-8027 Zürich
Redaktion: Alessandro Fezzi, +41 44 250 78 59, E-Mail: lgt.navigator@lgt.com
Quelle: LGT Bank (Schweiz) AG
Konsumentenpreise (J/J)
MEZLandIndikatorAktuell09:15ESMarkit PMI52.109:45ITMarkit PMI50.109:50FRMarkit PMI51.709:55DEMarkit PMI51.410:00EUMarkit PMI51.510:30GBMarkit/CIPS PMI49.710:30EUSentix: Investorenvertrauen-5.815:45USMarkit PMI51.616:00USISM PMI: Dienstleistungen55.1