The 3rd quarter largely followed the developments of Q1 and Q2. Depending on the vaccination progress of a given country we can see higher or lower levels of normalisation in the economic activity. But overall, it appears that the global economy is on a recovery path. Most recently we could witness a spike in energy prices as well as transportation costs, which in some cases went up ninefold versus 2020.
All the above triggered an adjustment in inflation expectations as well as overall interest rate levels. Especially medium to long term interest rates adjusted upwards from less than 1% at the beginning of the year to about 1.5%, at this moment (reference: 10 Year U.S. Treasuries). In March we even saw 1.75% for 10 Year U.S. Treasuries.
While falling interest rates means rising bond prices, rising inte- rest rates always means the opposite: falling bond prices! Currently there’s a big discussion whether recent inflation spikes are temporary and will revert to historic CPI averages of close to 2% p.a.; or whether we need to brace ourselves for a permanent rise in consumer prices. Unfortunately, we will have to wait for a few more quarters to draw the right conclusions.
Both, the rise in interest rates as well as inflation fear have resulted in generally disappointing results for our safety invest- ment components in the FairHorizons Purple to Green. They
were flat to slightly down for ultra-short-term investments (building blocks purple) to significantly down for medium to long term investment grade bonds (building blocks blue and green). Overall, we saw better performance of global investment grade corporate bonds versus government bonds. Luckily, there were quite a few pleasant surprises, which we will discuss in more detail in the following segment.
Whilst the performance of our safety investment components was muted, with certain exceptions, the return investment components in the FairHorizons Yellow to Red did very well and delivered above average returns.
The only exception is building blocks which invest in Asian High Yield bonds as well as Chinese equities. After peaking in February, the Chinese equity market has entered a bear market and proves one of the most disappointing investments of 2021. Whilst some market participants are even calling China ‘un-in- vestable’ the more experienced voices seem to be looking at current price levels as a buying opportunity. We may be more in the latter camp but would suggest to not allocate more than 20 to 30% to Asian risk assets, be they equities or high yield bonds.
Das Family Office relies on a proven and broadly diversified investment approach through specially designed FairHorizons, which suggest portfolio solutions that combine investment components in a way that adapts to investment time horizons and cash flow needs of the investor: The longer the respective investment time horizon of an investor, the higher the advised risk share (equity share) should be. Conversely, risk (expressed in portfolio volatility) should be avoided if short-term investment horizons are in scope and liquidity must be kept readily available. 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 at wholesale prices to achieve the best possible outcome for its clients. Upon request, we will also construct portfolios using individual stocks and bonds.
If you have not yet become aware of Das Family Office, we would like to invite you to look at our website (www.dfo.sg) and start the dialogue with us.
Now have fun browsing through the various data and presen- tations of investment modules and reference portfolios. It‘ll be worth your while!