DFO Reflections — Q2 2021

The second quarter of 2021 continued much of the same trends as the first quarter: Equities of small and mid-sized companies, as well as more cyclical industries and slow-growth segments (keyword “value”), outperformed.

Shares of developing countries saw a strongly differentiated development: Shares of commodity exporters such as Saudi Arabia and Russia saw strong price gains, whereas Chinese shares could not reverse the negative trend since February and selectively even traded in the red. Even the celebrations for the 100th anniversary of the founding of the Chinese Communist Party could not ignite any price fireworks here.

The “stay-at-home stocks” and shares of high-quality and less cyclical companies, which were neglected in the first quarter, saw strong price increases in May and June such that we can no longer speak of “hibernation” here. It would have been a big mistake to say goodbye to these stocks for short-term considerations, as they would now have to be bought back more expensively.

The recovery of this quality segment is probably a result of the fact that the rise in interest rates of the first quarter has come to an end and we are already quoting 0.30 percentage points below the highs of 1.75 % for 10-year US government bonds again. This development is remarkable, as such low-interest rates with a current inflation rate of around 3 – 4 % p. a. are by no means a preservation of purchasing power. The bond market thus seems to assume only a temporary price increase and is not impressed by the many inflation preachers, which are out in the media to promote their new books. Nor should you, especially since you can easily protect yourself against higher inflation by combining our various portfolio components in a sensible way!

Another reason for the end of the rise in interest rates is probably the rapid spread of the so-called “delta variant” of the Covid-19 virus, which is delaying various opening efforts in many countries. This in turn slows economic growth and expected inflationary pressures.

The U.S. Dollar continued to gain ground against the Euro and Japanese Yen in the second quarter. Interestingly, only the Chinese Yuan has proved stronger than the Dollar. This is probably resulting from the fact that the Chinese central bank has already been putting on the liquidity brakes since February, thus holding back Chinese equity markets.

High-yield and subordinated bonds (Tier 1 capital, mainly from financial institutions) also had a good second quarter.

Thus, 2021 remains a very good year for equities and risk-seeking capital. Only owners of traditionally very safe investments such as government bonds must accept losses, depending on their duration (higher losses for longer duration-, smaller or no losses for short duration bonds). This makes it very clear that investors are well-advised to open their hearts to high-quality and broadly diversified equity investments. A sensible mix of quality bonds and quality shares oriented to your specific investment horizon and cash flow needs will lead you safely to your goal!

Das Family Office relies on a proven and broadly diversified investment approach through the specially designed FAIRHORIZONS, which resemble portfolio solutions that combine investment components while adapting to the respective invest – ment horizon and cash flow needs of the investor: The longer the respective investment horizon of an investor, the higher the advised risk share (equity share) should be. Conversely, risk should be avoided if short-term investment horizons are in scope and liquidity must be readily available.

This strategy worked very well in the second quarter of 2021, as our investment components and reference portfolios all played their assigned roles. Only portfolios containing exclusively bond building blocks have recorded moderate price losses. Even though unpleasant, this development is still within expectations. If one compares historically similar phases, one will conclude that any price losses should be recovered during a few quarters.

As an independent advisor, Das Family Office not only focuses on the currently very popular ETFs but also on index funds and institutional classes of actively managed funds to achieve the best possible outcome for its clients.

If you have not yet become aware of Das Family Office, we would like to invite and encourage you to look at our website (www.dfo.sg) and speak to us.

Now have fun browsing through the various data and presen – tations of investment modules and reference portfolios. It‘ll be worth your while!