The big picture of financial markets was drastically changed in 2022, and 2023 has been rather uncertain so far reports David Gorgone
The sudden surge of inflation led to a drastic changes in monetary policies. On top of that, some sectors have been under stress and geopolitical issues have pictured an uncertain environment for financial markets.
The price pressures turned out to be anything but transitory and persisted month after month. All these factors have required central banks to act quickly, unexpectedly and strongly in order to try to both maintain an equilibrium in financial markets and fight the inflationary trend.
All changes require adaptation, but are not necessarily negative.
Financial markets had, until recently, experienced years of extremely low yields and below-target inflation, pushing some investors to significantly increase risk to improve returns or mitigate negative yields. With short rates back to attractive levels, money markets have become a more profitable place.
Market uncertainties require agility
Market uncertainties and radical policy shifts require fund managers across all asset classes to adapt their strategies to respond to this new environment. This is true for money markets, too. While the risks are lower than other asset classes, money market strategies still face duration and credit risk, which can be significant enough to offset performance. To mitigate these risks, agility becomes key for navigating through a stormy environment and taking advantage of market opportunities.
Active management is one of the tools that allows fund managers to quickly adapt to unexpected market changes; first, to protect the capital, i.e. the current shareholders/investors, and second to benefit from new opportunities offered by markets in a rising yield context.
Money Market Strategies at Pictet Asset Management
Our philosophy is particularly well adapted to environments such as the one we are currently living in. The official rates in all the four major currencies we manage, namely USD, CHF, EUR and GBP, have been rising at an incredibly fast pace, which opens the window for attractive opportunities in the different markets.
Our defensive approach has been particularly efficient at reducing the duration risk.
Investing in multiple currencies hedged back in the portfolios’ base currency allows us to take advantage of a broader investment opportunity and, together with active management, brings an additional source of return compared to pure buy-and-hold single-currency strategies.
In addition, a wider investment universe enables increased diversification from a credit risk perspective, as well as lower counterparty risk and better portfolio.
Funds versus time deposits
Being mark-to-market variable net asset value (VNAV), our strategies instantly reflect evolving market conditions, immediately integrating rate-hike expectations in their offered yield while the rate on a deposit is fixed for an extended period.
Finally, the greater diversification of assets within the strategy will reduce counterparty risk.
For more information, please contact:
Pictet Asset Management SA
Route des Acacias 60 – 1211 Geneva 73
Tel: +41 58 323 3685
https://am.pictet/en/treasury-liquidity-solutions
liquiditysolutions@pictet.com
