Pictet Strategic Income (the “Fund”) seeks to provide income and achieve long-term capital growth over the medium to longer term while also managing downside risk by investing primarily in a global diversified portfolio of equities and fixed income securities.
The Fund’s investment in equity securities is subject to general market risks, whose value may fluctuate due to various factors, such as changes in investment sentiment, political and economic conditions and issuer-specific factors.
Investors should note that investment in debt instruments are exposed to interest rate risk, liquidity risk, downgrading risk and credit risk of the issuer. In addition, the Fund may invest in below investment grade debt securities and unrated securities which may have higher volatility and risks of default and may be subject to greater risk of loss of principal and interest.
The Fund may have significant exposure to emerging markets which are generally considered to present higher currency risks, political and economic risks, legal and taxation risks, liquidity risk, repatriation risk, volatility risk, settlement risks, custody risk. The Fund's investments may be more volatile and/or less liquid.
The downside risk management process aims at managing losses of the Fund through the active allocation between higher risk assets and lower risk assets or through the use of FDIs to hedge market and/or currency risks, but it may not achieve the desired results under all circumstances and market conditions. It may also preclude the Fund from capturing significantly the upside in rising markets.
The Fund may use financial derivative instruments for hedging and investment purposes. Such investments may involve higher degree of counterparty/credit and liquidity risks and may result in higher degree of volatility and substantial loss.
The Fund may invest in China A shares which may subject the Fund to higher political, tax, foreign exchange, regulatory, valuation and liquidity risks.
The units of the Fund aim to pay dividend on monthly basis. Dividend is not guaranteed. Dividends payable (if any) from the units may be paid out of the capital. Investors should note that the payment of dividends out of capital represents a return or withdrawal of part of the amount they originally invested and/or any capital gains attributable to the original investment. Besides, investors should be aware that distributions, including distributions involving the payment of dividends out of the Fund’s capital, may result in an immediate reduction in the NAV per distribution share. The composition of dividends for the last 12 months will be provided on the website www.assetmangement.pictet (the website has not been reviewed by the SFC) or can be obtained from the Hong Kong Representative on request.
Investors should not only base on this marketing material alone to make investment decisions.
Pictet
IMPORTANT NOTE
Pictet (the “Fund”) as an umbrella under the UCITS regulations consists of different compartments investing in equities or debt securities, each with different risk profile.
Some compartments may use financial derivative instruments extensively for investment purposes. Such investments may involve higher degree of credit/counterparty, market and liquidity risks and may result in higher degree of volatility and substantial loss.
Compartments which invest in a single market, a single sector or a limited number of issuers and/or geographic zones should be regarded as having higher concentration risk than compartments following a more diversified policy.
Compartments which have investments concentrated in Europe may be more susceptible to fluctuations in value resulting from adverse conditions in the European region.
Compartments which invest in emerging countries present greater political and economic risks, legal and regulatory risks, fiscal and tax risks and capital repatriation restrictions risk.
Compartments which hold a significant portion of illiquid assets may be exposed to risk arising from the difficulty of selling an asset at a favourable price.
Some Compartments may have high leveraged exposure and thus, may result in significant loss or total loss
Some Compartments may invest in RMB denominated bonds which may subject the Compartment to various risks of investing in Chinese market e.g. political, tax, foreign exchange, credit rating agency, regulatory, CIBM related, QFII and RQFII related and liquidity risks.
Compartments which mainly invest in bonds and other debt instruments are exposed to liquidity risk, interest rate risk, and credit risk of the issuer. They may also be impacted by a downgraded credit rating which may decrease the value and liquidity of the security and adversely affect the compartment's NAV.
Compartments which invest in below investment grade debt securities (including distress and defaulted securities) and unrated securities of similar credit quality may be subject to higher risks of default and greater levels of interest rate risk, credit risk, price volatility and liquidity risk.
Distribution shares aim to pay dividend on regular basis. Dividend is not guaranteed. Dividends payable (if any) from dy and/or dm distribution shares may be paid out of the capital. Investors should note that the payment of dividends out of capital represents a return or withdrawal of part of the amount they originally invested and/or any capital gains attributable to the original investment. Besides, investors should be aware that distributions, including distributions involving the payment of dividends out of the compartment’s capital, may result in an immediate reduction in the NAV per distribution share. The composition of dividends for the last 12 months will be provided on the website www.assetmangement.pictet (the website has not been reviewed by the SFC) or can be obtained from the Hong Kong Representative on request.
Investors should not only base on this marketing material alone to make investment decisions.
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Alternative assets are as prized as blue diamonds. Unfortunately, they’re just as rare – most of what glitters in the investment universe is actually rhinestone.
That’s because for all their perceived distinctiveness, most investments that carry the ‘alternative’ label tend to be made up of fairly ordinary underlying assets. More often than not, their only distinctive features are higher management fees and insufficient compensation for the fact that they are hard to buy and sell.
This shouldn’t be surprising. Most assets tend to behave in the same way because they are influenced by the same fundamentals, such as changes in interest rates and inflation. That’s why we’ve rejected most of the alternatives we’ve looked at.
Yet while true alternatives are hard to find, that doesn’t mean they’re not worth the effort. Particularly today, when bonds and equities tend to move more closely together than in the past.
Holding a separate group of assets that follow their own independent course is the sort of diversification that makes investors less vulnerable to broad macroeconomic forces.
And even if pure alternatives aren’t available, finding ones that have the right mix of bond- and equity-like characteristics can also help – as long as they come at an attractive price. A key asset allocation skill is not to overpay for diversification. Expensive assets are a drag on portfolio returns regardless of whether they move in lockstep with the broader market or not.
Just wearing fancy dress?
A close look at property highlights some of the problems investors face when assessing alternative investments. Property comes in two forms: a building site and the final construction. Owning a building site is much like owning stock in a high-growth company with the expectation that the return will come in the form of a capital gain. Meanwhile, the finished building broadly acts like a debt instrument, the main difference being that its coupons are called rents. So it’s not an alternative in the sense that it isn’t immune to the traditional driving forces of bonds and equities.
But that’s not to say property does not offer investors diversification. It can protect against inflation and has contractual cash flows that aren’t necessarily fully synchronised with traditional asset classes.
a volatile universe
Comparing the range of long-term returns for alternative and traditional asset classes
Source: Datastream, MSCI, JP Morgan, Prequin, HFRX, NCREIF. Returns are indicative. The private equity, hedge fund and commercial real estate index data are comprised of funds that may be closed to new investors and not be easily reproduced. Data covering period 20.03.2008-20.03.2018 except for commercial real estate which is to 31.12.2017.
Private equity is an asset class that gains from the fact that debt has tax advantages. It’s an investment best suited to long-term stable institutional pools of capital, like endowments and sovereign wealth funds, which can take advantage of the extra returns available as a trade-off for locking up money over long periods.
Elsewhere, there are infrastructure assets – such as toll roads, airports or hydro-electric projects. But because they’re typically contracts with the public sector, they end up mimicking the public bond market, albeit with lower liquidity and higher fees. Nor do they offer the prospect of equity-like capital gains.
Expensive alternatives and those that aren't even assets
Many investors are attracted to alternatives like artworks, wine, stamps, diamonds, rare cars etc. But these are, in fact, speculative assets. The decision to buy tends to be based on the expectation that someone will pay a higher price at a later date for something with no obvious intrinsic economic value. And they’re often hard to handle. Selling a portfolio of these assets can take many months and considerable legwork – all the while incurring significant insurance and storage costs.
Alternatives like artworks, wine, stamps, diamonds, rare cars etc. are, in fact, speculative assets.
As for commodities, not only do we not see them as alternatives, we don’t even regard them as long-term assets. There’s no evidence that commodity prices rise over time. In fact, technological improvements – be they more efficient machinery, better processes or something like the mid-20th century’s Green Revolution, when thanks to scientific innovation and technology, agricultural productivity rocketed – have generally contributed to a downward trend in long run commodity prices.
What’s more, commodities are often liabilities. Take timber. It generates no income, you have to pay to store and insure it and, over time, it rots. Forests, on the other hand, are assets. Investors can choose the pace at which trees are harvested and planted as well as the species mix, whether slow growing deciduous or fast evergreen.
Glittering gold
Gold is also interesting.
Bullionaires
Gold price, dollars per ounce
Source: Bloomberg. Data covering period 31.12.1979- 22.03.2018.
Not because of its commodity characteristics, but because it acts as a proto-currency. It’s true that, as with other commodities, gold doesn’t generate an income and incurs storage and insurance costs. But it isn’t a wasting asset, doesn’t tarnish and has historically worked as a store of value. And in a time when yields across assets generally are wafer thin or even negative, gold’s lack of income generation stops being a mark against it.
Gold comes into its own when people start to worry about central banks using the printing press to erode away the value of currencies, as well as during times of political turmoil and war. People buy it as a safe haven. Today’s worries about North Korea, the erratic Trump presidency and central banks’ growing balance sheets underscore its attractions as a long-term investment.
Research has shown that it also works as a hedge against stocks during normal market conditions.1 Which is to say that it works as a portfolio diversifier.
Valuing alternatives
Overall, most assets labelled “alternative” aren’t when looked at closely, they behave just like conventional assets. But there are some viable options available. The big question investors need to ask is whether the returns are sufficient to compensate for these assets’ typical lack of liquidity. What’s most important to remember is that whether the asset you buy is conventional or “alternative”, the price you pay for an asset will have a meaningful impact on your ultimate return.
About
Andrew Cole
About
Andrew Cole
Andrew is Head of our Multi Asset London team. He joined the team as a Senior Investment Manager in 2014. Before joining Pictet Asset Management, Andrew worked at Baring Asset Management, first as a global fixed income portfolio manager and then as a multi asset portfolio manager. He previously worked at Barlow Clowes and Partners as a passive gilt fund manager. Andrew started his career in 1979 with Montague Loeble Stanley as a UK stockbroker dealing in gilt-edged securities.
This marketing document is issued by Pictet Asset Management. It is neither directed to, nor intended for distribution or use by any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, the KIID (Key Investor Information Document), regulations, annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on assetmanagement.pictet.
This document is used for informational purposes only and does not constitute, on Pictet Asset Management part, an offer to buy or sell solicitation or investment advice. It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date. The effective evolution of the economic variables and values of the financial markets could be significantly different from the indications communicated in this document.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Asset Management has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
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