Swiss & Global’s Angele advocates search for “centre of gravity” in Euro crisis
Stefan Angele, head of investment management at Swiss & Global Asset Management, says investors must look for a “centre of gravity” disconnected from politics and quantitative easing, as the European debt problems are unlikely to dissipate in the next couple of years.
Angele (pictured) says: “[The European debt crisis] is a like a disease. We are out of the acute phase, but we have now entered the chronic one, and we still have not found a treatment.”
He believes Europe “needs to see more pain” before it considers the idea of a Euro breakup plausible, but is convinced Germany will take extensive measures to prevent this.
He explains it is Europe, not China, which acts as Germany’s largest export partner. Apart from this, Greece in particular is the biggest buyer of German military equipment.
As a result, the cost of an EU breakup for Germany is much higher than the cost of continually bailing out Greece. So Angele expects the vicious cycle on Europe to continue for the next two years, at least.
He therefore advocates avoiding investment in governments heavily affected by the political situation in Europe; he is especially negative on France.
He is also sceptical of the conditionality attached to the bond buying initiative announced by the European Central Bank. “The bond buying idea is smart, but it is wrong that the ECB has decided to link fiscal and monetary policy. It doesn’t give much room to manoeuvre, so now they are stuck,” he says.
Although government bonds offer good solvency, the yields are so low, so investors are just losing money, he continues. More often than not, these asset classes offer negative real yields, but even if there is some potential for yield pickup, the margin for error is so low they are not worth holding.
Instead, he thinks the only way to invest is by holding a well balanced portfolio of corporate bonds. He is particularly bullish on emerging market corporates, which offer higher yields and healthier balance sheets than their peers in the developed world.
Last month, Swiss & Global unveiled the JB Emerging Markets Corporate bond fund, offering investors the opportunity to diversify their fixed income allocation through corporate bonds from issuers in emerging markets.
The firm noted that “the emerging market corporate bond market now stands at around $1tr of assets and covers 38 countries including Brazil, Russia, Hong Kong and China. Three quarters of the market is investment grade paper and the average credit rating is BBB+.”
As an active investor, Swiss & Global applies a purely bottom up approach to investment. The focus is on pricing power and an attractive risk/return profile.
This year has been a difficult one for quality investors such as Swiss & Global, Angele notes. “We try to look for centres of gravity that are not susceptible to QE or politics,” he says.
But he is convinced that over a longer term period, typically around three years, the focus on quality will outperform other investment approaches.