Balanced ETF portfolios CHF Q2 2021 commentary

SaxoSelect Commentaries
Saxo Bank

Asset classesStocks (developed and emerging equity), bonds, non-traditional
InstrumentsETFs
Investment styleMacro, diversified investment focus
Quarterly return (net of fees) 
Defensive2.0%
Moderate3.8%
Aggressive 
5.2%

Market overview

Q2 2021 began with the reopening of major economies, as COVID-19 vaccine rollouts continued to proceed at a healthy pace. The quarter also saw strong economic data releases and sizeable fiscal support, as governments in most developed markets eased COVID-related mobility restrictions and activity levels picked up. In contrast, Emerging markets lagged against their developed counterparts as the Covid-19 crisis worsened in economies like India in April with case fatality ratios increasing significantly.

On the fiscal policy front, following the passage of the American Rescue Plan in March, President Biden outlined two more fiscal packages which propose a total spending of $4.1 trillion. This stimulus will be directed at the country’s infrastructure and a more equitable recovery. However, the central bank has become slightly more hawkish and has acknowledged that tapering is being discussed. The FOMC June rate-setting meeting resulted in no change in the policy, but it is expected to raise rates twice in 2023. 

On the economic front, US GDP grew at an annualised rate of 6.4% during Q1 wherein the growth in consumption was especially strong. Inflation as measured by the core consumer price index (CPI) rose from 3% to 3.8% year-on-year in May, with the economic reopening being a big driver. 

On the other side of the Atlantic, leading economic indicators have reached multi-year highs in many regions, pointing to strong economic rebound in Q2. The European Commission signed off on the first of the national recovery plans which will receive funding from the €800 billion Next Generation EU fund. The UK saw a rise in COVID-19 cases in June, however this did not lead to significantly higher hospital admissions, suggesting efficacy of vaccines against the new Covid variant. On the monetary policy front, the BoE left interest rates and quantitative easing unchanged at the June meeting, however, the central bank acknowledged that inflation had been higher than expected. 

Overall, equity markets ended the quarter on a positive note. Developed market equity (MSCI World Index) was up 6.4% in EUR terms. Emerging market equities (MSCI Emerging Markets Index) lagged developed markets and gained 3.5% in EUR terms.

Within fixed income, Government bonds saw mixed performance across the board, as U.S. treasury yields and UK 10-year yields fell over the quarter, while yields in the Euro-zone rose. Benchmark 10-year U.S. treasury yields declined ending the quarter at 1.47%. Government bond yields of Eurozone economies such as Germany, France and Italy, on the other hand rose with increments in the range of 9-15 bps. 

The EUR ended at 1.19 against the dollar, up about 1.09% over the quarter, as market expectations for European growth improved on the back of healthy vaccination rates and falling hospitalisations. 

Gold saw a modest gain over the quarter, finishing at $1770.1 per ounce, after seeing some volatility in June over the shift in interest rate expectations by the federal reserve.

 

Portfolio performance

Returns net of feesDefensiveModerateAggressive
Apr0.4%0.9%1.2%
May0.3%0.7%1.1%
June1.4%2.1%2.8%
Since Inception (Aug 2016)10.5%24.6%36.5%

In Q2 2021, reopening of major developed economies and strong vaccine rollouts were positive for global markets. As such all portfolios posted positive performance, with the higher risk profiles outperforming the lower risk profiles. 

Within the equity sleeve, U.S. and EMU equities (both CHF hedged) and Swiss equities were the main contributors to performance, while emerging market and Asia-Pacific equities were also additive over the quarter. 

The fixed income sleeve was a positive contributor to overall performance. Long-dated U.S. treasuries and global high yield bonds (both CHF hedged) were the main contributors to performance in the lower risk profile, while emerging market bonds was a major contributor in the higher risk profile.

Portfolio Allocation and top portfolio holdings (as of Nov 2020)

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