As usual, this period provides an opportunity to reflect on what has been another eventful year. The year 2021 was largely back in full swing, thanks to the various major efforts and decisions made worldwide.
2021 was also the year of confirmation of our investment strategy, which we had rolled out in the second quarter of 2020. Indeed, the low point of the markets was reached on 23 March 2020. This was also the peak of the uncertainty, leading to substantial intervention by governments and central banks. In that second quarter of 2020, we came to realise that the unprecedented monetary and fiscal stimuli would have major, and above all positive, consequences.
First of all, the monetary stimulus ensured that interest rates remained very low or even negative. This fact has allowed many governments to take on extra debt and, by so doing, to provide the maximum fiscal stimulation to the economy. We have continually applied the consequences of this to your investment portfolio by asking ourselves in the second quarter of 2020: “How can we best protect our clients’ assets against the risk that inflation could rise sharply?”
Today, we undeniably find ourselves in a climate of rising and high inflation. Inflation exceeds 5% in both Europe and the United States. This “consumer price inflation” is the inflation we face every day.
- It is the official inflation as reported by the statistics offices of all countries.
- It is the inflation that you see when you pay for your shopping.
- It is the inflation that you see on your energy bill.
However, low interest rates and negative interest rates in Europe have also resulted in “Asset Price Inflation”. “Asset Price Inflation” is the increase in prices paid for “assets” such as real estate and company shares.
Our challenge was, and today still is, twofold. “How can we protect our clients against rising consumer price inflation and the ever-increasing cost of real estate and corporate investments?”
1/ We protect you from “consumer price inflation” (=CPI) through the combination of inflation-linked bonds and shares.
- Inflation-linked bonds have a price linked to consumer price inflation, protecting you against persistent inflation.
- Shares of companies with pricing power also offer you excellent protection against consumer price inflation. This is because many of our companies have “pricing power” and can simply pass on rising inflation to their clients. In this way, they maintain their margins and see their profits increase further.
2/ In an environment of very low interest rates, how can we protect our clients from ever-increasing real estate prices and prices paid for companies and other investments?
The best way to protect our clients from this is to convince them to stay “invested”. There is no better example of this than March 2020.
Yet this is “wise” advice for investors with a time horizon of 10 years or more.
In the meantime, just like every investment year, the 2022 investment year introduces itself as: “full of promises, uncertainties, expected and unexpected events.”
Like every year, financial markets will seek answers to many questions such as “What will be the impact of less monetary stimulus? Will Omicron bring the pandemic under control for good? Will economic growth remain strong? What will be the impact of the huge wave of investment in infrastructure, climate, etc., coming our way? Will the heightened geopolitical tensions with China and especially Russia be handled wisely?”
In the meantime, we continue to work consistently with the same focus we have had over the past 30 years.
A focus on investing in bonds and in the shares of strong companies. These are companies with healthy balance sheets. Companies with a robust free cash flow generation. Companies with margins that are protected by “moats” such as economies of scale, network effects, etc. Companies whose shares we can buy at reasonable prices. Reasonable prices, especially compared with the negative interest rates that Christine Lagarde, the President of the ECB, is predicting for a long time to come.
And in the meantime, we continue to invest in important projects and in our employees to provide you with the state-of-the-art service you deserve!
Investing in a new IT infrastructure that enables us to operate our services even more efficiently and to comply even better with the many regulations and control mechanisms. Investing in digital applications that allow us to communicate even better about your assets and our efforts. Investing in new employees to strengthen our existing teams in our continuous growth.
We find ourselves in an inspiring growth dynamic that supports us in the following convictions:
- We have a very robust and sustainable business model that allows us to cope with the challenges of tomorrow;
- We have a powerful vision of the future based on our clients, our employees and the business in general;
- We have a good reputation in the market, a reputation that is also supported by our shareholder and, not insignificantly, by our regulators.