The latest roundup of fund selector views finds that regulation in Switzerland and the euro/dollar exchange rate or being closely monitored, along with a boom in microfinance private equity funds.
STEADY DEMAND FOR TREASURIES
Name: Charles-Henry Monchau
Title: Head of discretionary management
Company: EFG Asset Management
How do you view fixed income at the moment?
There is definitely a risk of US ten-year benchmark yields rising, but they could also be capped as improving macro conditions are offset by lingering Spanish sovereign risks and the 2013 US ‘fiscal cliff' fears.
Moreover, demand for Treasuries stays firm while supply will likely decelerate. Regarding duration, we avoid the back-end of the curve, but still like the three to five years, as short-rate expectations went a little too high.
We still favour credit as macroeconomic data, momentum and liquidity continue favouring risk, but we are becoming more selective. We continue favouring high-grade Asian industrials and US financials, which are cheap, and avoid European high yield and financial Tier 1 capital. We believe European and US industrials are expensive. Within emerging markets and wealthy nations, we still favour the Middle East, Asia and Russia.
In cases of upside macroeconomic surprises - such as US credit expansion - we could use hedges like the Proshares Ultrashort 20y+ ETF to protect against rising benchmark yields.
Name: Andre Keijsers
Title: Head of corporate strategy
Company: Gottex Fund Management Holdings
Is it important for Swiss fund allocators to have regulated fund products to invest in, and are Swiss managers ready to regulated?
Possibly among private investors and smaller institutions it may be important, but it is less important for mid-sized and larger institutions which are comfortable investing offshore.
It is the retail segment and small institutions for which it is more relevant to have regulated products. We think regulation is in general a good thing, [but] some Swiss managers may underestimate what it means to be regulated because they have not had this requirement before.
One could see smaller managers coming together in a group or consortium [to share regulatory infrastructure], or you may see regulatory solution providers providing regulation frameworks that managers plug [their funds] into. For small asset managers regulatory requirements could be very costly.
EURO SLUMP, DOLLAR TRUMPS
Name: Kim March
Company: Société Générale Private Banking
In which direction do you see the euro/US dollar exchange rate going?
The euro is bound to lose ground compared to the dollar. Portfolio reallocations and interest rate differentials will buoy emerging currencies.
The two recent long-term refinancing operations by banks subdued fears within the eurozone. The euro could thus rebound to decisively above 1.30 against the dollar. But the debt crisis has not been resolved. It is very likely that Spanish or Portuguese risks spark new fears, necessitating another ECB intervention and introduction or extension of IMF programs - weighing on the value of the euro versus the dollar.
Public sector deleveraging is a long process and needs to be accompanied by low interest rates. On the other hand, US growth has resumed. In this context, attraction of risky US investments has resurfaced among non-resident investors. We're counting on weakening of the euro-dollar rate from 1.25 by September to 1.20 a year from now.