Colin&Cie's positioning in the context of rising oil prices
The ongoing hostilities in the Middle East have caused oil and gas prices to rise significantly. Blockades of key transport routes and attacks on production facilities, pipelines and tankers could lead to a permanent shortage of fossil fuels. The consequences would be higher energy prices for households and businesses, rising transport and production costs and considerable inflationary pressure. Read the following article to find out how Colin&Cie is currently positioning itself in this environment.
Situation assessmentColin&Cie's ongoing assessment of the situation involves analysing over 250 indicators with preliminary character. The insights gained from this form the basis for targeted adjustments in the weighting of asset classes. In the current extreme situation in the Middle East, triggered by the attack on Iran by Israel and the USA, oil and gas prices have risen significantly. The corresponding in-depth analysis focuses on the development of inflation expectations and the associated risk of rising interest rates.
The following chart clearly shows the volatile development of the oil price. It is noteworthy, however, that long-term futures prices (red stars) continue to imply a significantly lower oil price over a period of six to eighteen months. The market therefore does not expect oil prices to remain high in the long term.
Source: LSEG Datastream, Colin&Cie
Another indication that the financial markets are not currently anticipating sustained inflationary trends is the expected stable inflation rate, derived from future interest rate developments. (see chart: inflation expectations in the eurozone)
Source: LSEG Datastream, Colin&Cie
Bonds
In the area of medium-term maturities of around five years, no notable changes in yields are currently observable in the United States, the eurozone or Switzerland. The same applies to risk premiums on corporate bonds, which have remained stable and at a low level to date. In the current environment, a strategic approach with low interest rate risk is proving its worth. Colin&Cie's positioning focuses primarily on corporate bonds with strong credit ratings and medium-term maturities of between three and just over five years, supplemented by an allocation to short-term investments which assure quick availability and low volatility. The aim of this structure is to ensure security while benefiting from a favourable risk/return ratio.
The graph shows the development of yields of bonds with a maturity of 5 years.
Source: LSEG Datastream, Colin&Cie
Equities
Nervousness on the equity markets has increased noticeably, particularly in Asia, where dependence on oil and gas supplies through the Strait of Hormuz is significantly higher. Nevertheless, the markets in the US, Europe and Asia remain predominantly positive on an annual basis, thanks to a robust economic situation and stable earnings expectations to date. In the current environment, a strategic approach with greatest possible diversification and defensive positioning is proving its worth. This includes broad diversification across regions and sectors, a focus on quality companies with solid balance sheets, and a reduced weighting of particularly cyclical segments.
Alternative investments
Alternative investments have repeatedly proven their importance as portfolio stabilisers and return optimisers in extreme situations in the past. Due to their low correlation with traditional investments, especially bonds, they remain an important component of a broadly diversified portfolio in this market situation.
Adjustments based on the current situation
Since the leading indicators relevant to the current situation do not signal any need for adjustment at this moment, we are maintaining our neutral positioning in the asset classes of bonds, equities and alternative investments. We are monitoring developments very closely, focusing not only on possible inflationary trends, but also on the risk of falling earnings expectations and the danger of rising government debt in the US as a result of the recent court ruling on tariffs.
Disclaimer - legal notice
This publication was produced by the Investment Office of the Colin&Cie Group. The information and opinions contained in this document are based on sources we believe to be reliable. However, we cannot guarantee the reliability, completeness or correctness of these sources. All information and quoted rates are only up-to-date at the time of this publication and are subject to change at any time without notice. The content is based on numerous assumptions made by the Colin & Cie Group. It should be noted that different assumptions can lead to materially different results. The forecasts and assessments are only current at the time this publication is prepared and can change at any time without prior notice. Past performance of an investment is not a guarantee of future results. Certain investments can experience sudden and substantial losses in value. This information and views do not constitute a solicitation, offer or recommendation to buy or sell investment instruments or to carry out any other transactions. We recommend interested investors to consult their personal advisor before making decisions on the basis of this document so that personal investment goals, financial situation, individual needs and risk profile as well as further information can be duly taken into account as part of a comprehensive consultation. The information contained in this publication is marketing material that is distributed for advertising purposes only.
