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Frank Renggli

Corporate Communications

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Simon Roth

Corporate Communications
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Last year saw far-reaching changes in many sectors of society, not just in the Middle East and in North Africa. The tragic nuclear catastrophe in Japan has led to a rethink on energy policy throughout Europe. Germany is currently implementing its withdrawal from nuclear energy, while in nearly all European countries, including Switzerland, nuclear power plants are undergoing stress tests. At the same time the debt crisis in Europe has worsened, and there is, as yet, absolutely no real end to it in sight.

In addition, the United States had to endure a downgrading of its credit rating, and in Europe a number of countries have had to battle low ratings. Together with gold, the Swiss franc was one of the most sought-after safe-haven currencies for international investors. This led to the well-publicised intervention of the Swiss National Bank in autumn.

It is no wonder, against this backdrop, that last year felt at least like one of the worst years in recent times for many investors: the Swiss stock market posted a fall of 7.7% over the year. Allowing for negative inflation, the actual loss was 7.1%. Huge interest rate cuts, on the other hand, produced a return of 7.1% on Swiss bonds (7.8% in real terms). Investors with a mixed portfolio, predominantly invested in bonds, managed to end the year with a slight profit.

As shown by the study carried out by the Geneva private bank Pictet & Cie on the performance of stocks and bonds in Switzerland, however, the year was, by some way, not one of the worst years of the last decade: in 2002 the Swiss stock market fell by just under 26% and 2008 was the worst year for shares in the last 86 years during which Pictet & Cie has been analysing the domestic market.

Over the last 10 years shares have produced average gains of 2% per year; bonds, however, produced an average performance of 4.3% over the same period, with clearly less pronounced fluctuations in yields: the volatility of the stock market, measured by the standard deviation, was almost seven times the level of the bond market (22.3% compared with 3.4%).

The coming year will, to a large extent, probably be determined by the political answers to the debt situation in Europe and the US. The markets will, therefore, be subject not only to great fluctuation, but the correlation between the most important investment categories looks set to remain at a relatively high level in 2012. Investors and their wealth advisers are thus faced with a major challenge of, on the one hand, securing the capital invested and, on the other, generating regular income. Differing decision horizons apply to different investors in respect of these two goals, however.

More than ever, the need to carry out a comprehensive analysis of one’s own risk profile seems apparent and, using this platform to differentiate between long-term investment strategy, medium-term investment policy and short-term tactical measures. Dogmatically sticking to a one-off investment strategy is, in the current market environment, as unlikely to produce results as that of uncertainty- or panic-driven shifting of major portfolio positions.

January 2012 update (PDF)