The “Investment Spotlight” Top 5

Throughout the year, our Investment Insights blog examines and addresses a variety of topics ranging from financial markets and (geo)politics to sustainability across a wide array of countries stretching from the USA to China. But which were the year’s most-read blog posts? Here are the top five Investment Spotlights for 2021.

1st place: Back in January we were already asking ourselves: What comes after Angela Merkel? At that time, the CDU/CSU was polling above 30% in pre-election surveys and its later nosedive in voter support was not (yet) foreseeable, but it was already evident at the outset of the year that Armin Laschet would arguably be a weak candidate for the chancellorship of Germany. At the start of the year we also averred that the conservatives needed to revitalize their party platform. In the aftermath of the September election debacle and the (likely) relegation to the opposition benches, the CDU and CSU by now truly have to radically overhaul their party profiles to make them viable for the future. The personnel carousel has already been spinning furiously in recent weeks and is bound to bring forth new prominent political figures in the ranks of the conservatives in the months ahead. Even if Laschet, Friedrich Merz or Markus Söder do not end up succeeding Merkel, we are sticking to our January assertion that supertanker Germany remains on course, even with a “traffic light” coalition at the helm.

2nd place: “The strong Swiss franc has come to stay” was our message in March of last year. At that time, the EUR/CHF exchange rate stood at a new three-year low at the 1.055 mark. Interventions by the Swiss National Bank and a rapid resurgence of risk appetite on the financial markets after the coronavirus crash put the euro back on a significant upward path for a while afterwards. But today, the franc once again is under appreciation pressure and the EUR/CHF cross is back almost exactly where it was around 21 months ago. Two things have changed, however, in the intervening time: the franc is less richly valued than before, and the SNB appears less willing to combat the currency’s strength. We therefore reiterate our opinion that the franc looks destined to stay strong over the medium to long term on the back of solid fundamentals, low inflation and tight interest-rate differentials between Switzerland and other countries. The EUR/CHF exchange rate should thus continue to trend downward going forward.

Was strong…
…and remains strong

Euro vs. Swiss franc

Sources: Bloomberg, Kaiser Partner Privatbank

3rd place: Alongside bulls and bears, last year we also introduced you to a somewhat lesser-known species in the stock-market zoo: the seagull. In May 2020, after equity markets had quickly clawed back half of the coronavirus crash, it seemed an opportune time to give some thought to hedging strategies and to eschew relying solely on support from central banks (a.k.a. the “Fed put”). If someone back then had predicted to us that the S&P 500 index would gain another 60% or so over the next 18 months, we likely would have called that person an incorrigible optimist – one ultimately proven right by history, though. If a seagull spread – an option strategy combining a long put spread with a short call – had been used at that time to hedge against a renewed market downturn, no harm would have occurred (as is usual with insurance policies). However, investors not only would have had to bear the overt costs of the strategy in exchange for being able to sleep soundly at night, but as we now know in hindsight, they also would have had to bear the onerous opportunity cost of missing out on share-price gains. But whether one should henceforth rely on central banks alone in every new crisis to come is a different matter. We, in any case, would not advise investors to fundamentally delete hedging strategies from their repertoire on the basis of their experiences over the last two years.

To the moon
The coronavirus crash has long been forgotten

S&P 500 index

Sources: Bloomberg, Kaiser Partner Privatbank

4th place: Investors had to add a new acronym to their vocabulary this year: SPACs. These empty corporate shells that enable companies to quickly go public were on everyone’s lips at the start of this year. We viewed the situation at the time a bit more levelheadedly, not just because buying into a SPAC means buying a proverbial pig in a poke, but also because the construct was (and is) prone to exposing investors to lies and deception. Sure enough, the remainder of the year brought several more minor SPAC scandals to light. While hedge funds were able to pocket astronomical profits on some individual deals, retail investors were often left with a disappointing return. So, it’s not surprising that investor interest in blank-check funds has died down considerably in the meantime. Meanwhile, dozens of SPACs are still sitting on the money they raised and are looking for a takeover target. But the empty corporate shells haven’t completely gone out of fashion: in November, Donald Trump took his social network “Truth Social” public via a SPAC – and once more not without some discord.

Preprogrammed disappointment
SPACs lived up to their bad reputation

SPAC index

Sources: Bloomberg, Kaiser Partner Privatbank

5th place: Our blog post titled “A Question of Valuation”, which occupies fifth place, likewise had to do with equity markets. We pointed out in the article that stock valuations were very frothy in historical comparison, regardless of whether judged in terms of the Buffett Indicator or traditional price-to-earnings ratios. But the quintessence of the blog post was that valuations have never been a reliable timing tool. In fact, investors would have missed out on much of the rally if they had exited the stock market in April solely because of purportedly overstretched prices. The absence of alternatives could cause stock markets to climb even higher in 2022. However, it’s clear that today’s good performance comes at the expense of future returns because the correlation between valuation level and return potential that we pointed out last spring is still valid.

The longer the time horizon…
…the greater the relevance of valuation metrics

Forward price-to-earnings ratio and 10-year return on S&P 500 index

Sources: Bloomberg, Kaiser Partner Privatbank