Geopolitics – and the macroeconomic consequences of global events – is something all wealth managers have to deal with. In good times, it makes positive returns easier to come by. In times like this, it adds an extra challenge.
François Savary, CIO of Swiss-based wealth management advisory firm Prime Partners, tells thewealthnet this difficult period did not take him by surprise.
Prime Partners waas founded in 1998 and has around CHF 4 billion in assets under management (AuM). It is fully owned by its partners and has around 50 employees.
Towards the end of 2021 it became clear inflation was not going to be transitory, like central banks originally claimed.
The war in Ukraine further accelerated monetary policy, leading to central banks raising interest rates perhaps slightly faster than originally planned.
How difficult this period will prove to be, remains to be seen.
There are certain factors that will influence this.
The key one being whether central banks will be able to normalise inflation in half two. If they cannot, interest rates will likely keep rising in an attempt to curb inflation.
At this point, the main question will be whether a recession will become a certainty.
As for Mr Savary’s opinion? He believes it will be very difficult to avoid a recession.
However, it is not all bad news.
“I do not think it will be a strong recession. I think it will be short and limited in size,” Mr Savary stresses.
If a recession does materialise, it will likely hit Europe and the US, according to Mr Savary.
The UK may well be harder hit. Inflation is at a 40-year high and sterling is “depreciating significantly”. Meanwhile, the UK’s public finances are not in a good shape.
It may now be too late to sell in equity markets. “It will be stupid to sell and crystalise the loss" Mr Savary stresses.
But, there are still opportunities for investors.
For now, Mr Savary is focused on building strong and defensive portfolios that can hopefully weather the storm.
He does see opportunities emerging in big tech, particularly those firms linked to the production and less to the consumer side.
Companies like Microsoft offer good dividend yields, which Mr Savary thinks is a good strategy when starting to grow portfolios.
In terms of emerging markets, Mr Savary favours Asia. This is because if there is a recession, there will likely be some demand destruction.
Therefore, he would rather be invested with consumers of raw materials – like Asia is - rather than exporters of the raw materials, like Latin America or Africa.
In these conditions, “you do not want to be trying to be smarter than anybody else,” Mr Savary stresses. Nor do you want to be adding risk to your portfolios.
With this in mind, he will not touch any cryptocurrencies. “I do not understand crypto. I think it is a joke.”
He notes that crypto is a very large energy consumer. Given the current sanctions on Russia and the soaring energy prices, there will likely be a significant negative impact on cryptocurrencies.
Regardless of market movements, the aim remains the same for wealth managers – to protect clients’ capital and grow their wealth.
Sticking to a long-term strategy and not panicking will be key to those that prove successful in these aims.
