Asset Allocation

It’s not difficult to compare today’s era to the 1970s. An energy crisis, a hot war, a cold war, persistent inflation, soaring interest rates, rising house prices. Even Abba, with its flared trousers, is performing again, albeit as a hologram. For investors, a rerun of the 1970s would require a profound rethink. 

British asset manager Fundsmith follows a simple strategy: invest in strong companies, don’t pay too much and then keep them in the portfolio, preferably forever.

Over the past five years, US equities have shown superior performance. Measured over the five years ending May 2022, the S&P 500 index achieved an annualised total return of 13.9% in euros, compared with 10.8% for the MSCI World index. The return of the MSCI Europe index compares favourably with 5.1%. Only in 2017 did US equities perform less well, but in the years thereafter it was America First.

Chinese bonds have defied the general negative trend in bond and credit markets this year until recently, but ended May with heavy losses. 

As yields increase, several fund houses have recently bought European government bonds, following the ‘huge sell-off’ in this market. In the meantime, commodities should ease the pain of high inflation.

The neutral mixed fund portfolio consisting of 50 percent equities and 50 percent bonds remains popular despite year-to-date losses.

The introduction of the EU Sustainable Finance Disclosure Regulation should enable investors to better assess investment funds on their sustainability merits. The framework divides the fund landscape into three groups, with so-called Article 9 funds designated as the most sustainable, or dark green funds. 

Despite a wider uptake of alternative energy, fossil fuels like natural gas, oil and coal are here to stay for the next decades and the MSCI Global Energy Composite index will outperform both renewable energy stocks and the broad equity market over the next year, JP Morgan Asset Management said in its 2022 Annual Energy Paper.

Investing in trees might at first not seem the quickest route to wealth. Yet timber investments increasingly leverage their clear connection to sustainability and their long-term real asset investment characteristics. Timber investments, although not suited for everyone, can serve as a hedge against inflation, and as a commodity that can benefit from strong economic growth.

Investing in weapons and the military industry is controversial for many investors. For example, since 2011, investing in companies that produce, sell or distribute cluster munitions or crucial components thereof has been prohibited by law in 110 countries, including the Benelux. 

It is important to note however that the legal prohibition does not apply to participation in investment institutions and indices in which the producers of cluster munitions or companies involved represent less than 5 percent of the value of that investment institution or index.