Owing to the impressive performance of US technology megacap companies over the past eight years, 9 of the 10 largest companies by weighting in the 1,410 member MSCI World index are US technology stocks. They represent a record-high 23% of the index! In other words, today, an investment in global stocks heavily relies on a single industry in a single country.
Moreover, bonds no longer sufficiently diversify a portfolio which also contains stocks, especially when inflation is above target. Since mid- 2021, US bonds have been positively correlated with US stocks, as observed during the 1970-1991 higher inflation period. Better diversification, and thus lower portfolio risk, can be achieved by adding asset classes, such as commodities and alternative income strategies such as trend-following and relative value alternative UCITS funds.
Our recommendations
A theme focused on alternative assets and solutions outside of stocks, bonds and real estate.
- Alternative income strategies: private credit, structured products.
- Trend-following/CTA alternative UCITS strategies.
- Low volatility relative and global macro alternative UCITS strategies.
- Downside protected strategies, e.g. capital-guaranteed structured products, ETFs.
- Precious metals.
- Real estate funds (REITs) and value-add real estate.
Key risks
- The current Artificial Intelligence mania continues for longer, propelling US large-cap technology companies and thus the US stock market to greater outperformance, fuelling a higher concentration of the global stock market.
