What are the global trends that are shaping the investment landscape?

Will the upcoming US elections have a major impact on global markets? How do you assess President Trump’s re-election chances?

As we went into 2020, we highlighted the benign macro background we operated in back then. External shocks were pointed out as key risks for this year, including the outcome of the US presidential election. A Democratic victory could entail that we are likely to see more financial repression going forward, weighing on investment returns across all industries.

As far as Donald Trump’s re-election chances are concerned, never before have they been affected to such an extent as by this crisis, neither by the trade war nor by the hopeless attempt by the Democrats to impeach the President earlier this year. Should the economy not recover well in the run-up to the US presidential election on November 3, the US administration is very likely to drop its opposition to another stimulus package. The state of the economy will be a decisive factor influencing the election result.

Gold as a commodity has behaved in an unusual manner during the pandemic. Do you see a reason why it is not positioned as strongly as it should have been?

We indeed get questions as to why gold has not performed even stronger in light of the amount of money printed by central banks and the size of the asset purchases.

Gold and its price drivers are often fundamentally misunderstood. When held in physical form, the most precious characteristic of gold is the fact that it is the only financial asset that is not a claim against something else, i.e. that does not involve counterparty risk.

Gold therefore acts as a hedge against systemic risk, which means that in the short term, only a series of policy mistakes triggering a 1930’s style depression would provide additional tailwind.

If the measures to support and stimulate the real economy were insufficient, the real sphere would contaminate the financial system; a scenario in which gold would benefit. At $1,700 per ounce, gold fully discounts a deep recession. In the medium term, it could print new highs as reflation picks up steam.

What is your advice to investors on a best practice for asset allocation given the current market conditions?

With the Fed holding rates at zero for a very long period of time, there is no alternative to diversified investments.

Fed chairman Jerome Powell promised to raise interest rates only after full employment is restored, which could take several years.

Holding cash will therefore not be rewarded for a very long period of time, and I strongly reiterate the call to view the strategic asset allocation, and not cash, as the true benchmark in a world of explicit financial repression.

As such, Powell’s statement is constructive for financial markets, and we therefore stick to our current stance on equities.

Are investors more inclined towards a sustainable approach in the wake of the pandemic? How do you see this trend evolving?

In the end, it is all about managing risks.

In general, we like to construct portfolios by managing risks in a very conscious way, avoiding hidden bets and factor exposures we do not explicitly want to have.

In this regard, actively managing sustainability-related risks by incorporating ESG factors in our portfolio construction process certainly makes sense. Consistently, the absence of stocks including significant ESG-related risks in a portfolio tremendously enhanced performance during the first half of 2020.

Sustainable investing goes beyond a buzzword, and considerable capital reallocation shifts from traditional to sustainable investment products are to be expected.

In a nutshell, definitely a mega trend that is here to stay and develop much further across the entire industry.