Market expectations of US growth have gone too far and investors will soon see a slowdown.
This is according to Matthias Jenzer, CIO of Zurich-based wealth manager Quilvest, who has invested in long-dated US treasury bonds and increased his exposure to gold-mining equities based on this conviction.
‘Everybody is expecting yields to continue rising, and the current positioning is so significant that any negative surprises, like US growth going down slightly, would lead to a very significant rally in longer-dated US treasury bonds and bring those yields lower.’
The asset manager introduced 30-year treasuries and gold mining stocks to the portfolio after selling Japanese equities in expectation of the yen strengthening against a weaker dollar.
Jenzer has an optimistic mid- to longer-term outlook, but in the short term he remains cautious.
‘Last year was a perfect example that the less active you are the better you perform, as you tend to make fewer mistakes in an environment with a lot of tail events and uncertainties.’
Assessing the European market, Jenzer said there's a risk the ECB might taper too early, which would likely provoke a sharp rally in the euro.
‘If there is any currency that nobody is long, it is the euro. We might see a pronounced movement in euro-dollar, euro-yen and hopefully also euro-Swiss franc – we would love that in Switzerland.’
The asset manager is currently slightly long US dollar. However, he is planning to long the euro in the middle of the summer.
‘If the ECB indeed starts tapering more aggressively it would cost market participants a lot of money. On another hand, European financials would rally massively into that.’
Jenzer said his team started cautiously introducing exposure to European banks. One bank the asset manager likes is Unicredit, not in least because of the decision-making of its CEO, Jean Pierre Mustier.
‘In a sense it is a very defensive bank as it has marked its NPLs very conservatively. The stock is extremely cheap, while the bank has successfully pulled through its recent capital increase.’
Hedge fund appeal
When it comes to alternative investments, Jenzer said the firm usually has a significant exposure to hedge funds with an allocation of 15-20%. However, the team rarely invests in funds of hedge funds.
‘We usually don’t allocate to fund of funds because we tend to believe that most of the fund of fund managers are not better than us allocating to funds, which means we pay an additional layer of fees for nothing.’
The asset manager also shies away from quant strategies as it is often hard to understand what drives their returns.
Jenzer’s only quant exposure is to big CTAs, plain vanilla trend followers that can deliver attractive returns if a longer lasting bear market suddenly takes place.
Generally, when investing in actively managed funds the asset manager pays attention to fund managers’ character, why they do what they do and if they spend much more time marketing than researching.
‘People who position themselves as superstars and the next Soroses and Buffetts are dangerous to invest with.’