By Edward Leung
Easing is to be expected for much for the 2017 for the US and Europe, while sustainability and good return can be balanced through extensive analysis, says Philipp E, Bartschi, Chief Investment Officer for Swiss-based private bank, Bank J Safra Sarasin(“Bank J Safra”), in his recent asset market update.
The Fed may feel “at ease” for the New Year
With the easing policies in progress, Bartschi says banks in the US and Europe are still affected by low interest rate. The Eurozone is especially under impact by the Brexit question. In August to September the MSCI Euroland about MSCI World shows decline while the MSCI Emerging Market relative to MSCI World demonstrates opposite tendency.
Other than the easing zones, the US high-yield bond is reportedly performing well in the first stage of the rate hiking cycle, in addition, the cumulative returns on Asia Fixed Income have top CEEMEA( Central Eastern Europe,Middle East & Africa) and Latin America to be the top region for fixed income return. Investors may also consider diversification to equities for return hedges.
On whether the US will have new rate hike in 2017, Bartschi tells BENCHMARK, “The US economy has shown moderate growth in recent months. The Fed may adjust the prime rate in the 1.5%-2% territory to stablise the economy.”
Sustainability and returns go hand-in-hand
Besides economic cycles, Bank J Safra’s emphasis on sustainability has made the bank unique among its peers. Bartschi says that Bank J Safra bases their sustainability recommendations on analyzing most recent sustainability trends such as water scarcity, or new energy, and integrates these factors into the bank’s analysis within a sector.
In conducting the analysis, the bank will try to convince a client how his or her portfolio impacts on sustainability, such as the implied carbon footprint.
“We shall compare these factors against the average benchmark, to demonstrate to our clients how their portfolio would have an impact on the society, comparing to just investing in the overall market, so to ensure asset allocations to the most sustainable companies within a sector,” Bartschi adds.
In the process of achieving these goals, Bartschi concedes that the challenge is in finding the right indicators which are most financially relevant. Also, some sustainability trend will play out over a long period, making the judging of return challenging.
“For example, the solar energy industry was heavily subsidized in Europe a decade ago, making it an industry of bright prospect. However, most governments in Europe had since cutback subsidizes. The industry is in a state of oversupply at present, while there is strong competition from China. It is quite a challenge to find good projects that also perform well in investment.”
“Though careful analysis, we can then convince clients that through including sustainability in their portfolios, they may actually achieve better returns.”
On projects selection, Bartschi reveals that Bank J Safra currently overweight technology and healthcare sectors, while underweighting energy, materials, and financial sectors. “Only a few banks would fall into our sustainability criteria,” Bartschi adds. BM