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Fresh Perspectives lead to Limitless Possibilities; so überschreibt der renommierte lichtensteinischen Portfolio Managers Incrementum seine neueste Mitteilung (Englisch). 

Good Morning Ladies and Gentlemen

Last week I mentioned in my weekly that «When managing assets, we have to make sure not to get carried away by always the same information overflow the media is feeding us daily. Instead, strategy, structure, discipline and patience should reign, not daily media noise.» Today, I want to discuss his recipe for managing assets with my Partner Hans, responsible for managing our Incrementum All Seasons Fund (IASF).

Please elaborate to our readers on your investment style:
We are generalist investors, covering all asset classes globally in our pursuit of real returns. Since both the economy and financial markets go through seasons, IASF's asset and currency allocation is embedded in our top-down macro analysis. We prefer direct portfolio investments, and our picks are value-driven, occasionally with a contrarian bias. In addition, we look for favourable economic trends or investment themes that may provide tailwinds to our portfolio companies' business dynamics. We prefer hard assets over intangibles and distributions over accruals. We manage the portfolio actively, including the use of derivatives to navigate our overall asset class and currency exposure and the harvesting of volatility premium income.

According to your 30 years of experience in asset management, what are the three key topics every investor must keep in mind?
Admittedly, I find it difficult to narrow this down to 3 topics. Since I joined Incrementum AG in 2019, I have been writing a regular investor letter labelled "Seasonal Reflections", which can be found in the Journal on our homepage. Its appendix section records how eight investment lessons shape IASF portfolio management. If I had to narrow these down to 3 topics that universally apply to investors, I would say:

Know why you are investing: Are you making a call on valuation, following a trend, or basing your decision on technical analysis? – And pay attention to how your investment develops to what you would have expected so that you can take remediate action if necessary.

Strive for diversification, i.e. never put all your eggs in one basket, and make sure your baskets do not all sit in the same cart (or, in financial jargon, look for a combination of lowly correlated assets).

Lastly, and perhaps most importantly, learn to handle the greed and fear aspect of investing.

The Incrementum All Season's Fund was very successful over the last three years, and it is even up almost 30% in 2022 so far. How is this possible?
IASF is a global strategy fund, which invests independent of a benchmark, and thus can deviate widely from what passive and index-driven investment styles would allow. We have long argued that the secular debt cycle is peaking and will lead to a significant rise in inflation. By allocating significant portions of our portfolio to inflation-sensitive assets and managing overall equity and currency risk well, we achieved the results you mentioned above, which has led the fund to be ranked the best performer out of 1355 global peers over the past 12 month.  

The Incrementum All Season's Fund is not a Hedgefund, yet you do have the possibility to go short for hedging purposes; what is the process behind your hedging strategy?
IASF is indeed a long-only UCITS fund, though we can use index hedges to manage our overall allocation levels in this framework. I have long considered financial markets excessively priced, and thus we have used equity index shorts to reduce overall equity exposure in the fund, initially in late 2019 / early 2020. These were eliminated by the time equity markets made their Covid-lows in March 2020, but as equity markets resumed their rally, we have gradually reduced our net equity exposure once again by increasing our shorts, which has served us well this year as our long book rallied while our shorts also added value. Ultimately, we will always use all tools available to us to seek absolute and real, i.e. inflation-adjusted returns for our investors.

Last but not least, how do you see financial markets evolving in the coming months?
Disregarding current geopolitical issues, our core thesis these past few years has been that we have witnessed a second growth stock bubble in my career. Nevertheless, as inflation makes a comeback, nominal rates and thus cash flow discount factors rise, and with bonds continuing to offer profoundly negative real yields, we expect this to lead to a rotation out of growth into value stocks, while hard assets will increasingly come back into favour. So far, this has been playing out neatly. However, with the inflation tax at record levels, the pressure on central banks to fight inflation by tighter monetary policy risks is taking the punch bowl away that has sustained financial markets over the past decade. Any past attempt to raise nominal rates has caused a decline in risk asset prices, and hence I expect equity markets to make new lows over the course of the year, and the rotation from growth to value and the rally in commodity markets to continue. This will continue to provide attractive opportunities for active and truly index-independent investors.  

Quelle: Incrementum AG