Perspectivas de Inversión 2011

Executive Summary

Our preference for high-yield bonds and emerging market debt over G-7 sovereign debt and investment grade corporate bonds proved to be rewarding trades. Both of our favoured segments in the fixed-income space produced strong returns as they benefited from supportive inflows and an ongoing improvement of the credit markets. Our cautious stance towards G-7 sovereign debt was due to its unattractive risk/reward profile and the fear of a sudden trend reversal.


Our optimistic outlook on equities during 2010 was often put to the test during the year due to the negative impact of the European sovereign debt crisis and the mid-year concerns over the possibility of a double-dip recession. However, our assessment ultimately proved to be correct as companies consistently produced strong quarterly earnings and equity markets rallied from September onwards. Furthermore, the vast majority of the equity funds selected for our clients’ portfolios comfortably outperformed their respective benchmarks, bringing significant positive contributions. We had been hopeful for a good performance of Japanese equity markets, particularly due to the anticipation of a weaker yen. Unfortunately, this was prevented by the currency’s strong appreciation and it was not until November that a positive trend in Japanese equities finally emerged.


Concerning Hedge Funds, we wrote in January that hedge fund strategies would offervaluable contributions to the portfolios, in terms of performance, reduced volatility and diversification. Whilst the overall performance of Funds of Hedge Funds and certain strategies has fallen somewhat short of our more optimistic expectations, we are pleased to report that hedge fund managers have paid particular attention to the control of risk and liquidity and still managed to produce positive returns by avoiding deep draw downs. Furthermore, most of our selected single managers outperformed their peers and enhanced the performance of certain portfolios.


We had a positive view on commodities in January, as we stated that the economic recovery would gather pace. 2010 has turned out to be another good year for commodities in terms of performance due to robust industrial and financial demand. The 5% allocation to physical gold, in addition to the gold mining equity fund, produced another healthy contribution as dollar weakness and ongoing momentum trades supported the pursuit of the rally of the precious metal during most of the year.


The selection of these investment themes, added to our resolve during the more testing periods of the year, allowed the portfolios to take advantage of positive market trends throughout 2010 and to end the year with very respectable returns. It is, however, very important to highlight the impact of currency movements in 2010. For unhedged portfolios based in Swiss francs, the strong depreciation of both the Euro (- 16%) and the U.S. dollar (- 10%) meant that it was extremely challenging to be able to produce positive returns in Swiss franc terms.

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