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BKB CIO warns against jumping into defensive sectors

BKB CIO warns against jumping into defensive sectors

As its latest range of funds nears the three-year mark, Basler Kantonalbank (BKB) CIO Sandro Merino says he's keen on tech, neutral on equities and remaining constructive on the economy as a whole. 

BKB launched two funds in 2015: the BKB Anlagelösung Einkommen (BKB Investment Solution Conservative) and the BKB Anlagelösung Ausgewogen (BKB Investment Solution Balanced), which invest in fund shares and ETFs.

The bank later added a more aggressive strategy to the range, the BKB Anlagelösung Wachstum (BKB Investment Solution Growth), and created sustainable alternatives of each fund.

Big on tech 

Merino said he has been pleased with fund performance to date, which has been driven in part by tech stocks.

'Swiss investors have a home bias for Swiss equities, and they forget about the fact that the Swiss equity market doesn't have pure tech in a sustainable way as a sector.

'Tech has been one of the strongest performance drivers for equities. We had a constructive view on IT and added that as a satellite,' he said.

He also noted that his team has recently moved away from passive tech funds to take full advantage of the sector.

'We decided we would go to more active selection because these funds can choose not to go for the big five companies. They're more flexible and can reduce exposure to the giants.'

Downsizing 

Merino said focusing on small- and mid-cap tech companies has helped to protect the portfolio against interest rate volatility.

'Having an overweight in small and mid caps has paid off. I believed for a while that we should go into more conservative and defensive stocks, such as consumer staples or utilities, but they have large interest rate exposure.

'In this environment where rates tend to rise, going defensive would have not been the right choice for the next six to 12 months. After increased valuations and more volatility, it would be intuitive to say we have to play more defensive, but on the other hand the sensitivity of the blue chips to the interest rate tells us a different story.'

Equity outlook

While Merino says the global economy is doing quite well, he notes that the impact of political tensions on equities cannot be dismissed.

'We have a neutral position in equities. It's a tug of war between the risk factors. Nobody knows what Trump will do tomorrow – there's talk of impeachment, the trade war and budget discussions in Italy. These are risk factors you cannot rationally ignore.

'We remain constructive and have not become too conservative or too defensive in our strategy overall, but it's a game of chicken and we're aware of this.

'We have to be agile and not be too convinced in what we think is right. We're looking very carefully at any deceleration or signs of declining economic activity.'

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