Monthly Market Monitor
June 2021
Table of contents
In a Nutshell
Macro Radar Taking the pulse of economic activity
Our view on the markets
04
Satellite View
06
Geopolitical heat map
Asset Allocation
07
Notes from the Investment Committee
08
Theme in Focus
ESG: Sustainability corner
Greater transparency with our sustainability reporting
The pitfalls of ESG ratings
The Back Page
10
12
Asset classes & agenda
13 Kaiser Partner Privatbank AG | Monthly Market Monitor - June 2021
3
In a Nutshell
Our view on the markets
OECD raises its global growth forecast Economic activity is booming in the USA and Europa. In light of these two growth engines, the OECD raised its growth forecast for the world economy in late May from 5.6% to 5.8% for 2021. But the situation looks less rosy in large swaths of the rest of the world. The pandemic threatens to further widen the divide between industrialized and emerging-market countries. Continued constructive environment for stocks Equity markets have been drifting sideways in recent weeks. The current boom in corporate earnings and economic activity was gradually priced in over the last 12 months, but now a forthcoming and inevitable relative slowdown has to be digested. The mediumterm outlook, however, remains constructive because above-average growth rates and continued centralbank monetary accommodation are an ideal combination for stocks. Biden is a China hawk Intelligence investigations into the origin of COVID-19 and competition instead of dialogue… Five months after the change in leadership in the White House, the question of whether the Biden administration
Chart of the Month A likely return to normal | Higher inflation rates shouldn’t be made too much of (for now) US consumer price index
Sources: Bloomberg, Kaiser Partner Privatbank 4
Monthly Market Monitor - June 2021 | Kaiser Partner Privatbank AG
will take a hawkish or dovish stance toward China can unequivocally be answered with “hawkish.” The “cold war” between the two great powers is and remains the biggest risk on our geopolitical heat map. We provide a permanent overview A growing number of investors these days want their investment portfolios to do more than just deliver good risk-adjusted returns, but to also take environmental, social and corporate governance (ESG) aspects into account. Our comprehensive sustainability reporting gives interested clients a tool they can use to track the status and progress of their portfolios with regard to their impact on fostering sustainable environmental and societal development. The pitfalls of ESG ratings Sustainability ratings are a useful means of separating the wheat from the chaff when constructing a sustainable portfolio. However, small companies that don’t have an ESG rating frequently fall through the cracks during this process. As a result, ESG portfolios often exhibit a large-cap bias. This opens up (investment) opportunities for those investors who are aware of this fact.
(US) inflation data have been making a lot of headlines lately. Inflation in the USA jumped 4.2% year-on-year in April, and high numbers are also expected for May. So, there recently has been no shortage of warnings about a period of sustained price increases, nor has there been a shortage of attempts to put those warnings into perspective. The fact is that around half of the current spike in inflation is attributable to prices for used cars, fight tickets, hotel stays and other similar goods that were impacted by the “coronavirus effect.” In other words, it owes precisely to the same items in the basket of goods that drove down inflation a year ago. So, what we’re observing right now in the first place is a live illustration of the oft-cited “base effect.” Whether a specter of inflation really looms remains to be seen, and it’s a question that can’t be definitively answered yet as of today.
Kaiser Partner Privatbank AG | Monthly Market Monitor - June 2021
5
Macro Radar
Taking the pulse of economic activity
While the world’s industrialized countries are well on the road to an economic recovery, the near- and mediumterm prospects for many emerging-market countries don’t look remotely as good. The pandemic threatens to further widen the divide between rich and poor.
Europe is catching up (as expected) their (temporary) zenith at the end of last year. The Economic activity in Europe looks set to start firing on government of China has its foot on the growth brake, all cylinders in the weeks ahead, at least according to which is also reflected in a loss of momentum in China’s the data points seen in recent weeks. Surveys by the credit impulse, a measure of aggregate credit growth as EU Commission, national business confidence surveys a percentage of GDP. This has worldwide relevance and and purchasing managers’ indices have all come in bet- indicates that economic growth will slow again also in ter than expected. Economic output in the Eurozone the Western world in six to twelve months’ time. may now be poised to return to the pre-pandemic level by as early as the end of this year. In the USA, though, Tapering debate gaining intensity there have recently also been some isolated “negative” A number of inflation measures have spiked recently in surprises, but only because analysts in the meantime the United States, not just “classical” inflation figures have adapted their estimates to the fast pace of US like the US personal consumption expenditures price economic growth. index favored by the Federal Reserve, but also consumers’ inflation expectations. According to a survey by the The OECD raises its global growth forecast University of Michigan, consumers’ year-ahead expecUp by 5.8% instead of 5.6% – so reads the OECD’s re- tations for inflation climbed to a 13-year high in April. vised forecast for the world economy. However, the or- Little by little, more and more Federal Reserve officials ganization also points out that the ongoing economic are now saying that the central bank’s securities purexpansion is unusually uneven. Whereas industrialized chases need to be scaled back. economies will grow with above-average vigor this year thanks to successful vaccination campaigns, many Consensus estimates 2020 2021 2022 emerging economies are facing a much worse situation GDP growth (in %) due to a lack of vaccine doses and outbreaks of new Switzerland -3.2 3.3 2.8 COVID-19 waves. The OECD is calling for stepped-up inEurozone -6.8 4.2 4.2 ternational efforts to stop the divide between rich and UK -9.9 6.1 5.5 poor from widening further. USA -3.5 6.5 4.0 China’s credit impulse is losing momentum Chinese purchasing managers’ indices (PMIs) for the month of May were a mixed bag on the whole. While the country’s official manufacturing PMI slipped 0.1 point to a reading of 51.0, the Caixin manufacturing PMI edged up 0.1 point to 52.0. But both barometers already passed
Mean reversion | US data points can no longer spring surprises (on the upside) US economic surprise index
China
2.3
8.5
5.5
-0.7
0.3
0.5
0.3
1.7
1.3
Inflation (in %) Switzerland Eurozone UK
0.9
1.6
2.0
USA
1.3
3.0
2.3
China
2.5
1.5
2.3
Kaiser Partner Privatbank interest rates view Last
3M
12M
Key interest rates (in %) Switzerland
-0.75
→
→
Eurozone
-0.50
→
→
UK
0.10
→
→
USA
0.25
→
→
China
2.95
→
→
Switzerland
-0.15
→
↗
Eurozone
-0.19
→
↗
UK
0.81
→
↗
USA
1.61
→
↗
China
3.08
→
→
10-year yields (in %)
Sources: Bloomberg, Kaiser Partner Privatbank 6
Monthly Market Monitor - June 2021 | Kaiser Partner Privatbank AG
Sources: Bloomberg, Kaiser Partner Privatbank
Satellite View Geopolitical heat map
USA vs. China At the end of May, US President Joe Biden ordered his intelligence agencies to reopen a thorough investigation into the origin of COVID-19 in China because he feels that the explanation put forth thus far by the World Health Organization is insufficiently substantiated. Meanwhile, Biden’s diplomatic coordinator for Indo-Pacific affairs proclaimed that the era of dialogue with China is officially over and has been replaced by a new paradigm of competition. These examples illustrate that five months after the change in leadership in the White House, the question of whether the Biden administration will take a hawkish or dovish stance toward China can unequivocally be answered with “hawkish.” The “cold war” between the two great powers is and remains the biggest geopolitical risk on our heat map. The Iran challenge The International Atomic Energy Agency (IAEA) reached an agreement with Iran in May that allows it to continue monitoring the country’s nuclear program, but only until June 24. Negotiations over a complete return to the 2015 nuclear accord can thus continue to proceed, but the window of opportunity is closing
fast. The closer Iran draws to electing a new president on June 18, the more pressure mounts to find a compromise. If Iran doesn’t overplay its cards, a conciliation is likely to be reached because the USA in particular wants to shift its attention farther eastward in Asia as quickly as possible. A green(er) German government Surveys ahead of Germany’s Bundestag elections on September 26 show the Green Party riding a current of high-altitude air with poll numbers above 20% at the moment. The probability of the Greens co-governing in the next legislative period is greater than 80% right now. The extent to which they will be able to push through their agenda will depend on the makeup of the coalition in which the Greens co-govern. On the foreign policy front, the Greens advocate taking a clearer and tougher stance toward Russia and China. With regard to Europe, meanwhile, the current trend toward a more free-spending fiscal policy would continue under a governing coalition involving the Greens. This would likely tend to benefit the euro. Aside from that, we don’t expect the elections in Germany to have notable implications for the financial markets.
Geopolitical developments do not stop at the gates of the financial markets. On the contrary, they have become an increasingly important influencing variable in recent years. Our Satellite View takes a look at the major hotspots at the moment.
Kaiser Partner Privatbank AG | Monthly Market Monitor - June 2021
7
Asset Allocation
Notes from the Investment Committee
The base effect plays a role also on the equity markets. Since relative growth rates for corporate earnings and economic indicators will decline in the near future, this presents further grounds for an impending share-price consolidation. The medium-term outlook, though, remains constructive in the meantime.
Asset Allocation Monitor -
+
-
Cash
Equities
Fixed Income
Global
Sovereign bonds
Switzerland
Corporate bonds
Europe
Microfinance
UK
Inflation-linked bonds
USA
High-yield bonds
Emerging markets
Emerging-market bonds
Alternative Assets
Insurance-linked bonds
Gold
Convertible bonds
Real estate
Duration
Hedge funds
Currencies
Structured products
US dollar
Private equity
+
Swiss franc Euro British pound
Scorecard Macro
+
Equities: Base effect squared • The oft-cited base effect isn’t just affecting infla- Monetary/fiscal policy Corporate earnings tion, but is also playing multiple roles on the equity Valuation markets at the moment because the fact that corTrend porate earnings on both sides of the Atlantic rose 05/2021 Investor sentiment by around 50% year-on-year in the second quarter likewise owes to a low year-earlier comparison base. latest inflation data (and the risk of bubbles forming The same goes for a number of different economic on the financial markets), looks set to continue causindicators that have exhibited very high growth rates ing only intermittent hiccups, but is unlikely to stifle or have been hovering at a high level lately. Since the equity bull market. earnings and economic growth momentum hit their • Inflation is also an important issue at the moment low point (more or less) exactly one year ago and the even for businesses. The word “inflation” was utbase effect is now gradually vanishing, it soon likely tered routinely during Q2 earnings teleconferences. will become harder for data to surprise on the upside Many CEOs stated their intention to pass part of their going forward. Whereas the equity market last year increases in input costs on to their customers to limit already priced in the boom in earnings and economic the adverse impact on profit margins. This, too, is activity expected for 2021, it now first has to digest a reason why we consider stocks a preferable asset the forthcoming relative slowdown. This explains class even in a scenario of mildly higher inflation rates. the rangebound movement in stock prices in recent weeks and is a healthy development, in our view. Fixed income: Yields headed sideways in the short • The ongoing consolidation has already caused senti- run and upward in the medium term ment indicators, which were somewhat overheated • While the yield on 10-year US Treasury notes ulbefore, to cool down appreciably, forming a solid timately moved only sideways over the last two foundation for further share-price advances in the months despite sporadic media hype about rismonths ahead. An ideal combination of above-avering inflation figures, long-term market interest age growth rates and sustained ultra-accommodarates in Europe intermittently climbed higher. The tive monetary policies by major central banks would GDP-weighted average 10-year yield on European also support further share-price gains. The tapering sovereign bonds rose 30 basis points by mid-May. debate underway at the US Federal Reserve, which Regardless of whether from northern or southern definitely can be expected to intensify in view of the Europe, European government bonds – like their US 8
Monthly Market Monitor - June 2021 | Kaiser Partner Privatbank AG
counterparts – have been little more than ballast in Currencies: Strong British pound portfolios in recent months, all the more so since • EUR/USD: In recent weeks the EUR/USD exchange rate has taken aim at the upper end of its trading correlations between stocks and bonds have recentrange in place since the start of this year. Howly shifted sharply into positive territory and fixed-inever, negative momentum divergences have been come securities thus have no longer just detracted observable lately on the EUR/USD chart, and they from return performance, but have also stopped give reason to expect the upward impetus to lose exhibiting beneficial diversification properties. strength, which could portend a resumption of the • The fixed-income asset class is shaping up to be sideways drift seen in recent months. Catalysts for a challenging one in the months ahead. Although a new directional trend movement are lacking bewe expect bond yields to tend to consolidate in the cause the pros and cons for the euro and the US nearer term and recommend maintaining a neutral dollar with regard to economic growth momentum duration posture, in the longer run the interest-rate and monetary policy are balancing each other out path should continue to tend to point upward on at the moment. the back of above-average economic growth and an eventually inevitable return of monetary policy • GBP/USD: The British pound was the strongest G10 currency in May. Sterling is in a sweet spot at the to normal. Comments from central banks down unmoment: economic growth momentum in the UK is der indicate that monetary policy may soon be on still stronger than in most other regions, and finanits way to getting back to normal: central bankers cial market participants have moved up the timing in Australia and New Zealand have been expressof expected initial interest-rate hikes by the Bank of ing optimism lately and have held out the prosEngland relative to the US Federal Reserve and the pect of starting to raise interest rates next year. European Central Bank. If the momentum continues, the pound’s February high at 1.42 against the Alternative assets: Gold is riding an updraft US dollar will probably prove to be only a temporary • The price of gold has risen by more than 10% since obstacle to further gains. the start of April. Moreover, the recent upmove has broken gold out of its medium-term downtrend • EUR/CHF: The Swiss franc has exhibited renewed relative strength against the euro over the last two channel in place since August of last year. But the months. The EUR/CHF exchange rate has been yellow precious metal’s technical chart picture nudged downward mainly by recurrent dovish isn’t the only thing glittering at the moment; so comments by various ECB spokespersons that have are gold’s fundamentals. The high inflation numregularly dialed back expectations about when the bers of late are reminding many investors about ECB’s ultra-accommodative monetary policy will gold’s function as a protection against inflation. At come to an end. From a technical analysis standthe same time, real interest rates have recently point, the latest exchange-rate movements can still fallen, which means so has the opportunity cost be interpreted as a consolidation within a mediumof holding a position in gold. Last but not least, term uptrend channel. A next burst of upward iminvestors appear to have resumed favoring triedpetus for the euro could ensue if the ECB soon reand-tested gold over notoriously volatile cryptoaffirms the positive economic growth outlook both currencies. Gold, in our opinion, remains a vital formally and verbally. strategic component of a well-diversified portfolio.
Historical analogies are a popular tool of the trade for chart analysts. Although past price movements are useless for deriving precise forecasts about the future, it sometimes certainly is helpful to place present developments in a historical context to form expectations for the nearer-term future. A look at the S&P 500 index in the USA reveals an interesting analogy right now: the upturn since the coronavirus trough in March 2020 marks the most dynamic bull market in the history of the index and even surpasses the vibrant equity bull market from 1982 onward and the share-price advances after the great financial crisis. If we follow the analogy, a consolidation would be more than overdue by now. But since a constant sector rotation has already been observable in recent weeks, the correction this time appears to be playing out mainly beneath the surface.
Chart in the Spotlight Time for a breather? | A historical analogy gives reason to expect a consolidation Bull markets in the S&P 500 index
Sources: Bloomberg, Kaiser Partner Privatbank Kaiser Partner Privatbank AG | Monthly Market Monitor - June 2021
9
Theme in Focus
Greater transparency with our sustainability reporting
We provide a permanent overview “green” data and give interested clients a tool they can Sustainability investing is enjoying growing popular- use to track the status and progress of their portfolios ity and booming demand worldwide. More and more in detail with regard to their impact on fostering susinvestors want their investment portfolios to deliver tainable environmental and societal development. Begood risk-adjusted returns while taking environmental, low we describe the most important elements of our social and corporate governance (ESG) aspects into ac- sustainability reporting. count. There is a wide array of sustainability objectives that can be pursued through the investment of capital. Impact measurement: The spectrum ranges from adherence to international The 17 Sustainable Development Goals (SDGs) initiated norms and compliance with a two-degree global warm- by the United Nations in 2015 have quickly evolved into ing scenario to keeping CO2 footprints as small as pos- a global standard and a guidepost for a growing number sible and supporting the UN Sustainable Development of sustainability strategies. The SDGs, which encompass Goals, or even achieving a measurable impact. To meet issues including food security and nutrition, therapies such demanding aspirations, it is necessary to regu- for diseases, and (sustainable) water resource managelarly conduct an in-depth portfolio analysis based on ment, can also be used to measure the impact that portspecific sustainability criteria. The quantity and quality folio investments have on the real world. In this sense, of sustainability data reported by corporations have our sustainability reporting makes it possible to evaluincreased and improved in recent years and look set ate an investment portfolio’s contribution to a “more to continue doing so in the future, not least due to po- sustainable” society. To facilitate the evaluation, the litical pressure. At the same time, the number of data report aggregates the revenues generated by portfolio providers that collect and prepare ESG information in companies in business areas promoting sustainability different forms and according to different criteria has (such as alternative energy, energy efficiency, pollution also increased and has given rise to a veritable data prevention, education, or hygiene, for example). This uljungle in the meantime. Our newly developed compre- timately enables concrete assertions to be made about hensive sustainability reporting thus creates transpar- how much SDG-target-oriented real economic activity ency on two counts: we bring order to the jumble of is connected with a certain portfolio size (CHF 1 million, for example). The report also provides a qualitative assessment of the extent to which companies in a portfoHow sustainable is my portfolio? | ESG ratings at a glance lio contribute to the SDGs at the operational and prodESG rating distribution and ESG scores (portfolio vs. benchmark) uct level and appraises how well an overall investment portfolio aligns with each of the 17 UN Sustainable Development Goals. This, too, enables comparisons with respective corresponding benchmarks.
More and more investors believe that an investment portfolio should no longer deliver just a good riskadjusted return, but should also, for example, leave as small a CO2 footprint as possible and should contribute to achieving the United Nations’ Sustainable Development Goals. Newly developed comprehensive sustainability reporting enables interested clients of Kaiser Partner Privatbank to track the status and progress of their portfolios in detail with regard to their impact on fostering sustainable environmental and societal development.
Source: Kaiser Partner Privatbank 10
Monthly Market Monitor - June 2021 | Kaiser Partner Privatbank AG
ESG rating distribution and ESG scores: Sustainability ratings reflect the risks and opportunities that arise for companies out of ESG factors and how they deal with them. Our sustainability reporting provides a detailed breakdown of the ESG rating distribution and ESG scores of the companies held in an investment portfolio either in the form of shares or bonds or indirectly via equity or fixed-income funds and ETFs. The ESG rating distribution is broken down across a rating spectrum from AAA (very good) to CCC (very bad). The aggregated ESG scores, in turn, are depicted in relation to the three aspects environment (E), social (S) and corporate governance (G) and are additionally broken down into several subcategories. The subcategories under “environment”, for example, are climate change,
use of natural resources, waste management and environmental opportunities. The sustainability report always sets the ESG rating distribution and ESG scores for a client portfolio against comparable figures for a corresponding benchmark (usually an equity or bond index) and points out positive and negative deviations. Moreover, the reporting enables the ESG ratings and scores to be broken down to the sector level and let’s you see which portfolio companies are the best and worst performers in terms of their ESG scores. Ecological footprint: Global warming and its consequences are arguably the most relevant ESG risk for the Earth’s population as well as for companies, and indirectly thus also for investors in the end. The ecological footprint of an investment portfolio (and the ambition to progressively shrink its size) therefore has elevated importance. Our sustainability report discloses the amount of CO2 emissions associated with the stocks held in an investment portfolio. The overall level of CO2 emissions includes direct emissions (scope 1), indirect emissions from energy supplied by third parties (scope 2) and other indirect emissions (scope 3) that occur before the start of or after the end of a company’s product or service cycle. The report additionally calculates the portfolio’s relative CO2 footprint (how many tons of CO2 per CHF 1 million of invested assets are emitted?) and emissions intensity (how many tons of CO2 per CHF 1 million of revenue are emitted by the companies held in the portfolio?). Just like for ESG ratings and scores, the reporting also makes it possible to compare a portfolio’s ecological footprint data against comparable figures for a corresponding benchmark. In addition, the sustainability report shows which individual positions and sectors in the portfolio have the biggest ecological footprint and sheds light on what percentage of the portfolio is invested in companies that generate revenue with fossil fuels (coal, oil, natural gas) and are only marginally improving their ecological footprint. Controversial business areas: Alcohol and tobacco, gambling, genetic engineering, atomic energy and arms manufacturing are all considered controversial business areas and need to be critically questioned, particularly in the context of environmental and social aspects. Exposure to these questionable business areas poses a potential source of risk in an investment portfolio and therefore must be explicitly monitored. Our sustainability report points out what percentage of a portfolio’s market value exhibits exposure to companies operating in controversial business areas as well as exposure to controversies in connection with violations of global standards and norms.
overview of the current state of ESG risks and opportunities in an investment portfolio, but also enables you to further refine the portfolio sustainably. We will be happy to assist you in adding personal touches to your portfolio and putting your investment assets to work to contribute to a more sustainable society. Would you like to learn more about our sustainability reporting? We look forward to hearing from you.
How big is my ecological footprint? | Emissions at a glance CO2 report
What is my contribution to achieving UN Sustainable Development Goals? | Sustainability themes at a glance
+0,2 -10
-5
-10
-5
-10
-5
-10
-5
-10
-5
0
-0,4
+0,5 5
10
-10
-5
5
10
-10
-5
5
10
-10
-5
5
10
-10
-5
5
10
-10
-5
+0,1 0
-0,1 +0,0 0
-0,3
Benchmark
-5
0
10
-10
-5
0
+0,6
5
10
-10
-5
0
-0,1
5
10
-10
-5
+1,4
+0,6
0
+0,2
5
10
-10
-5
0
5
10
-10
-5
5
10
5
10
0
-0,4
5
10
5
10
5
10
5
10
-0,1 0
-0,5
-0,2
-0,0
-0,2
0
+0,3 -0,2
+0,5
0
+1,0
-10
+0,7 5
+0,0
-0,1
-0,2
0
0
+0,2 +0,7
+0,6
Your contribution to a more sustainable society Our sustainability reporting can be drawn up and delivered to interested clients at any time on request and/ or can be attached as a supplement to the periodical portfolio report. It provides not just a comprehensive
Have a look at one of our short ESG reports:
0
-0,7
+0,1 0
-0,5
+0,5 5
10
-10
-5
0
+0,0
-10 Strongly Missaligned 0 Neutral 10 Strongly Aligned
Source: Kaiser Partner Privatbank Kaiser Partner Privatbank AG | Monthly Market Monitor - June 2021
11
ESG: Sustainability corner The pitfalls of ESG ratings
ESG rating ≠ credit rating the 50% best ESG ratings from the two largest rating “The good ones go into the pot, the bad ones go into agencies observed a performance discrepancy of 10 your crop.” ESG ratings have an undisputed (added) percentage points for the former and 24 percentage value, especially since they enable investors to sepa- points for the latter over an eight-year period. The rate the wheat from the chaff among potential invest- choice of rating agency can therefore be a prime dement candidates and to thus avoid ESG risks as much terminant of how successful dedicated sustainability as possible, regardless of whether the investment is in strategies are. Besides the best-in-class approach, this equity shares or bonds. However, sustainability ratings also applies to other ways of playing the sustainability also (still) have their downsides. Since corporate ESG theme, such as employing ESG momentum strategies, reporting has little standardization and since the mar- which assign a higher weighting to shares of companies ket is teeming with a multitude of ESG rating agencies that progressively improve their ESG rating. Since ESG that ascribe differing relevance to ESG issues and mea- ratings aren’t purely black or white and definitely have sure companies’ performance on ESG factors in vari- a big gray area, this makes it all the more important for ous different ways, there is a wide dispersion of ESG sustainability investors to engage in extensive dialogue ratings particularly in the upper half of the rating spec- with companies and rating agencies. This is precisely trum. This means that ESG appraisals of a company can where collaboration with sustainability experts like Kaisometimes differ significantly from one rating agency ser Partner Privatbank can deliver added value. to the next. This is also expressible in numbers. Studies that have analyzed ESG ratings from various agencies …and a large-cap bias arrive at a low correlation of just 0.4 to 0.6 between But there is also another problem with ESG ratings. them. The correlation coefficient of classical credit rat- Since investors frequently use them as a filter, compaings from the major agencies S&P, Moody’s and Fitch, nies without an ESG rating often completely drop out in contrast, stands well above 0.9 (90%). of the picture. These are usually small-cap companies, for which rating agencies see less demand and which Significant performance differences… they therefore do not analyze. Consequently, sustainBest-in-class investment strategies that select the most ability-minded investors tend to overweight large comsustainable companies with the highest ESG ratings panies in their portfolios as a result of a large-cap bias. can therefore end up with significantly differing bas- Large-cap companies not only receive better coverage kets of stocks and can thus ultimately result in diver- by ESG analysts, but also receive a better rating on gent investment performance outcomes. An analysis average because they can devote more financial and conducted by Research Affiliates that constructed two human resources to their ESG reporting. Smaller comUS portfolios and two European ones on the basis of panies, in contrast, often lack the resource capacity to present themselves in the best possible light. This circumstance additionally contributes to the frequently The bigger, the more sustainable? | ESG ratings exhibit a large-cap bias observable size bias in sustainability portfolios. But this Distribution of ESG ratings from different agencies large-cap bias also presents opportunities for those investors who are conscious of it, because it’s often % smaller companies that do a better job of managing 100 ESG risks. They often think with the long(er) term in 80 mind and often engage in more sustainable business 60 practices. This particularly applies to family-owned enterprises. Investors who go the extra mile and already 40 take such companies into account in their investment 20 portfolios today are bound to benefit from the likeli0 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10 hood that small caps will pop up on ESG radar screens ESG RATING ESG RATING ESG RATING sooner or later. A resulting increase in investor deLarge Cap Small Cap mand then looks destined to go hand in hand with a boost in valuations. ESG rating analyses have undisputed information content value, but sometimes also have their pitfalls. Since ESG rating practices have little standardization, judgments on a company’s sustainability can differ significantly from one ESG rating agency to the next. Moreover, ESG rating agencies tend to discriminate against smaller-sized companies, which in turn opens up investment opportunities.
Sources: Michael J. LaBella et al. (2019), Kaiser Partner Privatbank 12
Monthly Market Monitor - June 2021 | Kaiser Partner Privatbank AG
The Back Page Asset classes & agenda
Performance as of 31 May 2021 Asset class
YTD
1 month
1 year
3 years
Cash Cash CHF
-0.1%
-0.7%
-2.0%
Cash EUR
0.0%
-0.5%
-1.2%
Cash USD
0.0%
0.2%
4.6%
Sovereign bonds
0.1%
-1.9%
8.1%
Corporate bonds
1.0%
7.6%
19.6%
Fixed Income
Microfinance
0.4%
3.0%
10.6%
Inflation-linked bonds
1.7%
4.1%
18.9%
High-yield bonds
0.2%
12.3%
20.6%
Emerging-market bonds
1.2%
10.2%
19.8%
0.7%
6.3%
12.1%
-0.7%
43.6%
56.1%
Global
1.0%
36.9%
47.9%
Switzerland
3.5%
17.6%
42.8% 23.1%
Insurance-linked bonds Convertible bonds Equities
Europe
2.5%
35.1%
UK
1.3%
18.7%
0.5%
US
0.4%
41.2%
64.2%
Emerging markets
2.1%
47.9%
22.8%
Alternative assets Commodities
2.7%
46.1%
2.3%
Gold
7.8%
10.2%
46.9%
-0.4%
14.0%
31.4%
0.3%
13.4%
12.4%
EUR/USD
1.7%
10.1%
4.6%
EUR/CHF
0.1%
3.0%
-4.7%
GBP/USD
2.8%
15.1%
6.9%
Real estate Switzerland Hedge funds Currencies
On our Agenda June 11 to July 11: UEFA European Football Championship The 16th staging of the tournament was actually supposed to have taken place in 2020, but the coronavirus pandemic forced a postponement. The ball, however, will resume rolling this summer under enforcement of corresponding safety precautions. June 20: World Refugee Day Every minute of every day, 20 people around the world leave everything behind to flee from war, persecution or terrorism. Particularly in times of a pandemic, the fate of refugees fades from view, making the remembrance fostered by the 21st World Refugee Day all the more important. July 4: US Independence Day Thanks to a successful vaccination campaign and low COVID-19 case counts, the American national holiday looks poised to be celebrated this year almost like back in the “good old days,” with picnics and hot dog eating contests across the country. US stock exchanges will observe the holiday a day later this year on Monday, July 5.
Kaiser Partner Privatbank AG | Monthly Market Monitor - June 2021
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Monthly Market Monitor - June 2021 | Kaiser Partner Privatbank AG
Publisher:
Kaiser Partner Privatbank AG Herrengasse 23, Postfach 725 FL-9490 Vaduz, Liechtenstein HR-Nr. FL-0001.018.213-7 T: +423 237 80 00, F: +423 237 80 01 E: bank@kaiserpartner.com
Editorial Team:
Oliver Hackel, Senior Investment Strategist Roman Pfranger, Head Private Banking & Investment Solutions Cornelia Kopf, Marketing Specialist, 21iLAB AG
Design & Print:
21iLAB AG, Vaduz, Liechtenstein
DE210312
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