Keeping a clear head
Performance for the 2018 financial year
The board of trustees of the Swisscanto Flex Collective Foundation decided at its meeting of 17 January 2019 to raise a provision of 0.70% of the Flex 20, Flex 30 and Flex 40 investment pools in favour of the whole foundation again this year. This was prompted by the fact that the pensioners' pension fund will slide into a funding deficiency. Other measures were not adopted for the time being. This deduction increases the negative performance as at 31 December 2018 as follows:
For the 'Flex collective' product, the board of trustees decided to pay interest of 1% (BVG minimum interest rate) on the savings capital, to the debit of the funding ratio. For the 'Flex individual' product, the individual pension fund commissions will decide the interest rate in consideration of the financial situation.
The fourth quarter drove many market players to despair. The figures were indeed dark red, in particular in the aftermath of the excellent results seen in 2017: Swiss equities lost -8.60% in 2018, while the global equity market declined by around -8.70%. Emerging market equities did not manage to recover from the distortions experienced in the middle of the year and ended the year as lowest performers (-14.60% in USD).
The environment for fixed-income investments was also irregular. Although foreign government bonds improved in local currency, the high costs of hedging resulted in a negative performance of around -1.50%. Swiss government bonds strengthened by 0.40%, but this gain was wiped out again by corporate bonds.
Crude oil, which traded at a multi-year high of around USD 85 per barrel at the beginning of the quarter, lost more than 35% in value in just a short while and also ended the year in negative territory (-19.50% in USD).
Portfolio manager’s comments
We expected challenging times to follow on the brilliant and fairly stable previous year. The correction in February was therefore no surprise. Although the equity markets subsequently recovered slightly, investors were never optimistic. Even while corporate profits and margins grew strongly and the economy flourished, the mood was dampened by the threat of trade war and the US Fed's interest rate hikes. When first concerns about a recession were raised in October, global equity markets dropped sharply, leading to the weakest quarter for equity investments since the global financial crisis in 2008.
The biggest challenges of 2018 (trade conflict, Italy and Brexit) are likely to continue causing uncertainty and volatility on the financial markets. We also expect global economic growth and corporate profit growth to weaken slightly. At the same time we are expecting the global economy and corporate profits to continue growing in 2019, while the financial markets will likely return positive, albeit moderate yields again.