Quarterly Report Q1/2022
ReviewThe first quarter of the new year was overshadowed by the invasion of Russian troops into Ukraine. The hitherto prevailing discussions about the Corona virus and its Omicron variant had been relegated to a supporting actor within a very short time in view of the factual situation -- although not without object. The war in Ukraine fueled fear and uncertainty. Not only among various states of the former USSR, such as the Baltic states, with regard to Russia’s further desires, but also the security of energy supplies, especially in Germany, became the focus of public interest. Exploding gasoline prices and drastic increases in crude oil and gas prices tore holes in the wallets of every single citizen. But many people were also concerned about a complete escalation of the conflict. A relapse into the days of the Cold War, which had never been thought possible, suddenly seemed more likely than ever. Inflation in the euro zone reached a record high and in the USA even rose to levels last seen in the 1970s. As a result, there was a sharp rise in government bond yields. In this environment, a movement on the capital markets could be observed which showed certain similarities to the Corona Crash two years ago. Only the impact was not quite as severe at the end of the day, but it showed once again how quickly hard-earned money can lose value.
PerformanceOur equity fund ended the first quarter with a minus of only 0.51% in Euro and 2.02% in Swiss Francs. In comparison, the major indices: DAX -10.76%, the STOXX600 (Europe) -7.30%, the S&P500 (USA) -2.34% and the MSCI World (worldwide) -2.94% (all values in Euro). Two factors were decisive for the significantly better performance of our fund: on the one hand, a strongly defensive orientation of the overall portfolio throughout the quarter, and on the other hand, a functioning hedging strategy that protected our investors from large losses. Our bond fund did not perform positively, with -8.94% in euros and -10.32% in Swiss francs, nor did the Bloomberg Barclays Global High Yield Total Return Index Value Hedged EUR, which closed the quarter at -5.49%. The decisive factor was distortions on the bond markets, which led to valuation discounts as last seen during the financial crisis in 2008/09. The extremes have calmed down somewhat in the meantime, and we expect a further normalization in the course of the next few weeks. In order to indemnify our customers in this environment, we have decided, in consultation with the fund management and custodian bank, to make the distribution on April 26; in terms of the amount, we expect it to remain at the same level as in recent years.
Current positioningWe had already adopted an overall cautious stance throughout the second half of 2021 and continued this unchanged into the new year. The situation seemed too risky for new investments in view of the further rising markets at the beginning of January. Even before the Russian invasion of Ukraine, we had further reduced risk by reducing positions in Industrials and Technology. In contrast, we overweighted Financials (theme: inflation and interest rates) at a good time again for a long time and also further increased our positioning in Oil stocks. In addition, we decided to make first reopening plays in the so-called BEACH sector (booking, entertainment, airlines/airports, cruising and hotels) in order to participate in an expected recovery in the leisure and tourism sector. So, after a temporary even more defensive stance than at the beginning of the year, we have returned to a slightly more optimistic and progressive stance towards the end of the quarter. If our hedging strategies cost performance into January, they were crucial this quarter in the downside that formed with the start of the Ukraine war. Once again we saw how valuable, especially in highly volatile markets, such hedges can be. We realized some of the gains from the hedges, rolled the rest into the new quarter, and are thus well prepared for possible further dislocations.
OutlookRarely have times been as uncertain as at the end of the past quarter. Has Corona now largely gone bye-bye, or are we just granted a respite before the next, perhaps again significantly more aggressive mutation variant? Is a completely new virus around the corner, forcing us once again to make unpopular decisions? What will happen next with the war in Ukraine? Will Vladimir Putin turn off the gas tap to Europe completely? What would the consequences be if a number of companies had to shut down production due to a lack of energy supply? Are Audi and VW only at the beginning of a procurement crisis for necessary components (e.g. cockpits and cable harnesses)? How can we avoid production stoppages, supply bottlenecks and the associated price increases in the long term? Which production capacities from Eastern Europe and Asia will be brought back to Europe and what price will consumers have to pay for them? How will inflation continue to develop, how long will the environment of negative real interest rates remain with us? Uncertainty is always poison for the capital markets. “Risk off” is then the name of the game for many investors, in other words, as risk aversion rises, investment rates fall because money is taken off the table. But there is also positive news. According to a chart from Statista, based on data from Offical Airline Guides, airlines are again planning with significantly higher seat numbers than in the past, which means that global air traffic is increasingly heading for pre-crisis levels. The badly battered BEACH industry (see also “Current Positioning”) seems to be turning its back more and more on the partially catastrophic situation of recent years. In other industries, too, the situation is visibly normalizing, with entire departments returning to the office and using the home office only sporadically. And even though there are still problems in various supply chains -- the demand for products has not diminished in the big picture. Inflation, however, is here to stay. Even if various central bankers and politicians continue to claim that everything is only temporary: Until the problems in the supply chains normalize, increased prices will dominate the picture. The fact that energy prices have exploded as a result of the war in Ukraine alone indicates that inflation will persist for some time. If food prices now also rise significantly, this will tell us everything we need to know about the future course of events. At the same time, central banks see themselves backed into a corner in the face of massively rising government debt (higher defense spending, energy supply guarantees combined with price caps, economic stimulus packages post Corona). In view of these facts, rising interest rates in the long term are probably more wishful thinking, although the times of zero or even negative interest rates are probably a thing of the past. Nevertheless, there will not be a completely new picture on the interest rate side, at least in the short term. Thus, there is a risk that the euro will continue to lose ground against hard and crisis currencies such as the Swiss franc. But where to put excess liquidity? In view of the enormous fluctuations on the capital markets, a conservative saver may feel dizzy at best or scared at worst. However, the alternatives to investing in securities are and remain extremely limited. The good old savings deposit is exposed to further devaluation due to continuing inflation. Gold has experienced two strong boosts within a short period of time, first due to the Corona crisis and then due to the Ukraine war, and has probably seen the biggest increases. However, it can be an integral part of any solid asset due to the existing mix of inflation and thus negative real interest rates. Cryptocurrencies have nothing to do with investment, but clearly belong in the realm of speculation. Substantial investments are crucial for the coming months, because investments with substance make a portfolio safe and stable. We stand for investing the money entrusted to us prudently and taking advantage of opportunities as they arise, without taking incalculable risks. Investments in hard currencies such as Swiss francs but also kroner in Scandinavia (Denmark, Norway) are an essential part of our strategy, and not just since today. Whenever you see a need for discussion, please do not hesitate to contact us. We will be happy to take the time to explain our point of view to you and to answer all your questions in detail, no matter what financial topics you may have.
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