Clariden Energy Equity Fund
Our policy with respect to equity funds is to be overweight in energy. We believe oil prices will remain within OPEC’s target range — $22 to $28 per barrel — for the next few quarters. At this price range many energy companies can make decent returns. Thus profits in the energy sector are expected to remain relatively good at a time when earnings in many other industries are under pressure. Moreover, if price/earnings multiples are compared, the energy sector does not appear expensive compared with equity markets in general. Finally, energy exposure provides some portfolio insurance in case events in the Middle East turn even less stable. At this time many in the Bush administration are arguing forcefully for a military attack on Iraq. Were this to occur, oil prices could spike well above $30 per barrel.
The Clariden Energy Equity Fund offers investors a way of gaining diversified exposure to the energy sector. Roughly 40 percent of the fund is invested in US companies, 11 percent Russian companies while the next two largest country exposures are to the UK (nearly 10 percent) and Canada (nearly 8 percent). The fund has beaten its benchmark, the MSCI energy index, since inception and is among the best performing funds in its sector.
Clariden Asia Pacific Equity Fund
The investment story for Asia remains compelling despite having outperformed global equities by a huge margin since September lows. We still expect Far East equities, which continue to score highly in terms of valuations and earnings momentum, to yield superior returns over its global counterparts in the short and medium term.
We favor the more developed markets as they have bore the brunt of the sell-off on the back of the continued weakness in the US equity markets. We like South Korea in particular, given the valuations, the depth of the market and strength of the economy driven by both exports as well as robust consumer demand. Some leading cyclical stocks in Taiwan and Singapore are also starting to look interesting. While Hong Kong may be less inspiring, we are positioned for a bullish outlook for domestic consumption in China. We continue to favor companies like Samsung Electronics (IT), CNOOC (Energy), Huaneng Power (Utilities), and Kookmin Bank (Financials), which are leaders in their respective fields.
Clariden Money Market Fund CHF
The Swiss National Bank left rates unchanged in March, but on May 2 lowered the target range for Swiss three-month LIBOR by 0.5 percent and surprisingly, on July 26 by another 50 basis points to 0.25 percent — 1.25 percent. With this step the National Bank was reacting to the rapid appreciation of the Swiss franc, which had led to an undesirable tightening of monetary conditions in Switzerland. So long as the Swiss franc stays strong against the euro, the National Bank can be counted on not to raise interest rates. The plunge in equities, bad corporate results, accounting frauds and the unresolved situation in the Middle East have combined to increase the chance of a stronger Swiss franc. This could lead to low Swiss interest rates for the foreseeable future.
With this negative environment, and given the low level of interest rates, a conservative investment policy with respect to credit quality has been followed in Clariden’s money market funds. Over the last couple of months the manager has increased the portion of AAA-rated paper in the Swiss franc fund to above 50 percent.
Clariden US High Yield Bond Fund
The high yield market suffered from several unexpected blows in the second quarter, reflecting the uncertainty caused by the recent unfortunate developments in the US capital markets in which several high profile companies such as Adelphia and WorldCom have come crashing down at the hands of dishonest management teams and fraudulent accounting methods. The size of the new "fallen angels" such as WorldCom and Qwest, have had a precedent-setting technical impact on a high yield market that has been forced to absorb them.
While the wave of corporate scandals has weighed heavily on the markets, the economy is showing indisputable signs of recovery. We expect headline risk will subside, and risk premiums will narrow going forward. The combination of a stronger US economy and continued interest in the high yield asset class bodes well for high yield returns going forward. The conservative bias of the fund reflects our desire to minimize defaults. However, we do believe the fund is appropriately positioned to take advantage of the recovery in the US economy. We will continue to maintain diversity by name and by industry in the fund. We will also continue to emphasize investments in higher rated high yield bonds in order to maintain a quality rating of at least Ba3/BB and in order to minimize defaults.
(The information contained herein is for information only and should not be construed as an offer or a solicitation to purchase, subscribe, sell or redeem any investments. While Clariden Bank uses reasonable efforts to obtain information from sources, which it believes to be reliable, Clariden Bank makes no representation or warranty as to the accuracy, reliability or completeness of the information.)