DFO Reflections — Q1 2022

We started 2022 with moderate expectations due to the generally good results in 2021. However, we would never have dreamed that by the end of the first quarter we would already feel as if a whole year was behind us:

Putin‘s invasion of Ukraine is currently overshadowing all other events and bringing unspeakable suffering to the peoples of Ukra- ine and Russia. But it also affects many people whose basic food and energy supplies have become considerably more expensive. For Germany and Europe, a new era has dawned that we, as witnesses of the fall of the Berlin Wall, would not have thought possible in this form. Putin is forcing us to take actions and in- vestment decisions that are diametrically opposed to combating important problems such as global warming. Hopefully there is still a way back here!

Besides the erection of a new iron curtain against Russia and potentially China, 2022 is all about rising prices and the response of global central banks to the same. The US Federal Reserve has already raised its short-term reference rate (FED Funds Rate) in March and signalled that various interest rate steps are in the of- fing, which should bring US short-term interest rates to between 2-3 %.

Whether this will ultimately happen depends on the extent to which the U.S. economy remains stable and can cope with such significant interest rate increases. Short-term US bond yields are already above 2 %, largely anticipating the FED‘s expected ac- tions. Long-term American bond yields, however, suggest that in- flation can be contained again in the medium term and we should expect ‘pre-Corona era’ levels of between 2 % and 3 % p.a.

The European Central Bank has also signalled that it is conside- ring ending its bond purchases and raising its benchmark interest rate. While it has not yet made a decision, the market for Euro- pean government bonds has already moved strongly in anticipati- on of upcoming ECB decisions. For example, the 2-year Bund yield is now at just under 0 %, whereas last year it was at minus 0.75 %. Also 5, 10 and 30-year Bunds are again showing positive interest rates between 0.37 % and 0.67 %. Although German savers are now enjoying positive interest rates again, they are still far too low to guarantee inflation compensation. We therefore urge caution here and would only buy such bonds in combination with broadly diversified equity investments and within the framework of our FAIRHORIZONSTM.

As mentioned before, rising interest rates mean (accounting) los- ses for bonds. The longer the maturity of a bond, the higher the loss. With a one percent rise in 10-year government bonds, in- vestors can expect a loss of about 7 points. For this reason, bond buyers saw the worst performance for global bonds in the first quarter since the early 1980s. The most popular global govern- ment bond index (Bloomberg Barclays Global Aggregate Index) has also lost more than 10 % since its peak in 2020. This is why almost all of our security building blocks are experiencing accounting losses of between 1 % and 11 %.

Since rising interest rates and war uncertainty are also proble- matic for equities, almost all global equity markets have equally recorded losses. Only the segments that were more or less ostracised by many investors in previous years (oil & mining companies, banks, etc.) were able to post significant gains. As a result, broadly diversified stock indices, which basically contain all stocks, were able to do relatively well at minus 4-5 %, and achieved slightly better results than investment grade bonds. This rarely ever happens!

Equity investments that focus primarily on quality growth-, ‘ESG companies’ or the ever-popular Nasdaq 100 index had to record losses of about 10 to 20 %, which significantly underperformed the MSCI AC World and MSCI World Smaller Company index.

The reason for this can be seen primarily in the fact that quality growth stocks are usually valued somewhat more expensively due to corresponding future prospects, but are less in demand when interest rates rise.

(Accounting) losses, which we are currently experiencing, are no pleasure, but they are part of a long-term concept. Andre Kosto- lany, a famous stock investor, therefore said: ‚first comes the pain, then comes the money.’

Luckily, our clients understand this very well and were not temp- ted to panic sell despite adverse market circumstances. We are very pleased about that. Panic selling is no solution!
Moreover, we can promise with a clear conscience that bad quar- ters, such as the last one, are usually followed by good quarters in the long run. It should also be said that clients who built their portfolios in previous years and not just recently, are enjoying attractive annualised returns.

Das Family Office PTE LTD relies on a proven and broadly diversi- fied investment approach through the specially designed FairHo- rizonsTM, which entail portfolio solutions and proven investment components while adapting to the respective investment horizon and cash flows of an investor: the longer the respective invest- ment horizon of an investor, the higher the advised risk portion (equity portion) should be. Conversely, risk and associated short term volatility should be avoided if short-term investment hori- zons are in scope, and funds need to be kept available quickly.

As an independent fee-based fund manager & advisor, licen- sed by the Monetary Authority of Singapore (CMS Licence), we focus on comprehensive investor education and do not receive any commissions or hidden fees from fund companies or other product providers.

If you have not yet become aware of Das Family Office PTE LTD, we would like to invite and encourage you to take a look at our

website (www.dfo.sg) and reach out to us ([email protected]).
With this in mind, have fun browsing through the various data and presentations of investment modules and reference portfolios. It‘s worth it!