1、MARKET OUTLOOKThe start of a new cycle 2024Marketing materialPublication date:11 January 2024,8:00 CETPlease find important legal information at the end of this document.Source:Bank Julius Baer&Co.Ltd.(Julius Baer),unless explicitly stated otherwise.3 EditorialDear Reader,Our outlook for 2023 was th

2、at it would be the year of the cool-down.Whilst this took a while to come to fruition,we did eventually see both growth and inflation rates slowing as expected.Now that we have entered 2024,the talk is all about when we will finally see the major central banks start to loosen their monetary policy.U

3、ntil the timing of this becomes apparent,there may be some ner-vousness in the markets.However,as inflation cools off further,we expect to finally embark on a new,more familiar economic cycle.Barring any wild-card events,we expect both equities and bonds to benefit.At the start of the year,it pays t

4、o remain invested in quality growth and defensive stocks,as well as qual-ity bonds.However,as the markets get the first scent of the new,lower interest rate environment,investors will benefit from adding cyclicals to their portfolios too.When it comes to overarching themes,the power of the Magnifice

5、nt 7 and the ability of artificial intelli-gence to impact all sectors should not be ignored.Furthermore,as always,alternative investments pro-vide another option for increasing the diversification of a portfolio.The market rally that we saw at the end of 2023 demonstrates the power of remaining inv

6、ested.Julius Baer looks forward to helping you navigate your way through your investment decisions in 2024 by maximising the opportunities that the new cycle is expected to bring.As always,we thank you for your trust in us and wish you a very successful year ahead.Yours faithfully,Christian Gattiker

7、Head of ResearchYves BonzonGroup Chief Investment OfficerMember of the Executive Board 4ContentsA brief review 5Macroeconomy and strategy 10Fixed income 18Equities 30Alternative investments 40Further information 50Important legal information 53A brief review2023 turned out much better than many inve

8、st-ors had expected.Most asset classes ended the year in positive territory,with many equity indices posting double-digit gains.However,the year was not without setbacks along the way.The sharp rise in yields to levels not seen since the onset of the Global Financial Crisis was difficult to digest f

9、or both equity and bond investors.Fixed income invest-ors,in particular,had to hold their nerve.However,a stronger-than-expected decline in inflation rates and markets increasingly pricing in the start of a rate-cutting cycle in 2024 pushed yields lower,so the year ended on a positive note for bond

10、investors as well.A brief review6Market review2023 will be remembered as the year when artificial intelligence(AI)went mainstream and risk assets defied higher policy rates.However,following the largest interest rate increases in decades,growth will remain under pressure.We expect 2024 to be the yea

11、r in which central banks start their rate-cutting cycles,thus paving the way for a new economic cycle into 2025 and beyond.Equity regionsThe bestJapan posted the biggest gains of 2023 mainly driven by a weak yen,sustained regulatory reforms,and a loose monetary policy.Investors focus was,however,on

12、US equities,which were not far behind thanks to the regions high exposure to the years winning theme:AI.The worstOnly one major equity region ended 2023 in the red China.The country suffered from the downturn in its property sector and from fiscal and monetary stimulus measures that market participa

13、nts consid-ered insufficient.Switzerland ended the year only slightly positive,mainly due to its defensive sector composition,which could not benefit from 2023s improved risk sentiment.2002220235-year annualisedSwitzerland29.98%1.07%19.51%-17.50%2.94%7.21%Eurozone26.05%-3.32%21.54%-9.94%1

14、6.85%9.54%USA30.88%19.70%25.75%-20.31%27.04%15.14%Japan18.48%10.23%12.93%-6.45%30.04%12.77%UK16.37%-13.93%15.13%5.33%6.15%6.83%China24.34%29.49%-19.30%-21.43%-11.20%-2.80%Emerging markets ex.China16.23%12.55%7.87%-19.65%20.07%6.88%7 A brief reviewEquity styles2002220235-year annualisedQua

15、lity36.08%22.20%23.24%-22.16%32.22%16.57%Value21.75%-1.16%18.42%-6.62%11.29%8.87%Growth33.68%33.83%19.33%-29.56%36.79%16.02%Large cap27.73%15.94%20.04%-18.31%25.04%13.30%Small cap26.18%15.96%12.09%-19.07%15.53%9.76%Cyclicals31.54%19.30%25.80%-22.40%33.60%15.40%Defensives21.69%1.60%21.70%4.20%2.20%9.

16、80%High dividend23.15%-0.03%12.07%-4.76%8.97%8.19%2002220235-year annualisedInformation technology47.55%43.77%28.21%-31.26%53.11%23.92%Materials23.35%19.93%12.19%-9.97%14.40%12.01%Oil&gas11.45%-31.46%37.71%43.77%2.23%9.88%Industrials27.77%11.68%14.10%-12.79%22.83%12.20%Communications27.39

17、%22.98%13.02%-37.17%45.41%10.46%Healthcare23.24%13.52%15.52%-4.54%3.68%10.47%Financials25.51%-2.84%24.80%-10.62%15.94%10.22%Consumer cyclical26.57%36.62%15.67%-34.61%34.58%12.91%Consumer defensive22.80%7.79%9.85%-6.13%2.24%7.52%Real estate22.96%-4.99%24.11%-24.50%-9.59%0.38%Utilities22.53%4.76%6.09%

18、-4.11%-0.02%6.15%The bestQuality,growth,and cyclical stocks were 2023s outperformers,as they benefited from the improved equity-market risk sentiment and a better-than-expected economic backdrop.We expect the stellar performance of the growth seg-ment to continue in 2024 as bond yields potentially c

19、ontinue to fall.The worst Defensive stocks were the worst-performing equity style in relative terms over the year,with only a slightly positive return in 2023.The style became increasingly unpopular among investors,who became bolder towards the end of the year.High dividend was another style which,a

20、lthough solidly in the green,was less in favour in the high-yielding environment of 2023.Equity sectorsThe bestAI was the dominant theme in financial markets in 2023.Thus,it is unsurprising that information tech-nology was not only the best-performing sector over the year but also closed the year sp

21、ectacularly up more than 50%.Communications also performed well up more than 40%.The worstReal estate was the only sector to end 2023 really in the red down almost 10%.Elevated yield levels put pressure on this highly interest-rate-sensitive sector.Defensive sectors also showed lacklustre perform-an

22、ce,with utilities changing little from the start of the year and consumer defensives and healthcare ending up only slightly in the green.A brief review8Fixed incomeDeveloped markets2002220235-year annualisedUS government bonds6.86%8.00%-2.32%-11.65%3.70%0.50%US TIPS8.43%10.99%5.96%-11.38%

23、3.81%3.14%USD IG corporates14.54%9.89%-1.04%-15.76%8.15%2.59%USD high yield14.32%7.11%5.28%-11.19%12.87%5.36%USD floating-rate notes4.28%1.38%0.52%1.33%6.66%2.82%Emerging markets2002220235-year annualisedEM hard currency12.13%7.02%-2.48%-16.24%9.53%1.37%EM local currency9.47%5.29%-2.53%-8

24、.23%6.57%2.09%The best Despite being a very difficult year,all fixed income segments ended 2023 on a positive note.A better-than-feared US economy led to excess returns in risky bonds.The best-performing seg-ments were US high yield(which,despite increased default rates,moved up more than 12%)and em

25、erg-ing market hard-currency bonds,due not only to tightening credit spreads but also to the high carry of these instruments.The worstSafety did not pay off in relative terms in 2023,with US government bonds and US Treasury inflation-protected securities(TIPS)ranking among the weakest performers.The

26、 longer duration of these sub-asset classes was a drag on performance for most of 2023 but helped their recovery in the last two months of the year.However,with the eas-ing cycle potentially set to begin in 2024 and econ-omies likely to continue to face growth constraints,we prefer medium-to-longer-

27、duration high-quality bonds in order to mitigate reinvestment risks.2002220235-year annualisedBrent crude oil22.68%-21.52%43.61%10.45%-10.32%7.45%US natural gas-25.54%15.99%49.43%19.97%-43.82%-3.08%Gold18.87%24.42%-5.74%-0.13%13.45%10.09%Silver15.32%47.38%-15.61%2.95%0.19%9.16%Platinum22.

28、05%10.71%-14.02%11.33%-7.33%4.57%Aluminium-1.84%10.61%34.93%-16.18%0.08%5.23%Copper3.32%25.97%25.65%-14.10%1.38%7.33%Iron ore28.70%70.26%-27.81%-1.08%22.55%13.91%CommoditiesThe bestIt has been a difficult year for commodity markets,which have had a very mixed performance.Nev-ertheless,gold ended the

29、 year above USD 2,000 per ounce for the first time in history,as prices were pushed up by excessive expectations of interest rate cuts.Iron ore shrugged off the weakness in Chinas property market,reflecting hopes of stimulus meas-ures,while copper outperformed all industrial metals due to looming st

30、ructural supply shortages.The worstEnergy prices were the worst performing segment within the commodity complex.Oil was down despite geopolitical tensions,and ample supplies of natural gas pushed prices below pre-energy-crisis levels.Chinas weak growth backdrop put the prices of industrial metals un

31、der pressure amid surging supplies.9 A brief reviewHedge fundsThe bestThere were positive returns for the broad equity long/short index on the back of the attractive envi-ronment for long-biased managers who captured the positive market return.However,outperform-ing the markets was more difficult as

32、 volatility came down over the course of the year,and,except for the Magnificent 7,most stocks moved very little.This meant that more market-neutral managers strug-gled throughout the year.Nevertheless,their chance to shine came in the August-to-October period,when markets sold off and volatility wa

33、s high.The worstAfter a very strong 2022,global macro-related discretionary trading strategies lagged in 2023.Many managers were caught on the wrong foot and were short-squeezed in March when bond yields dropped like a stone following the US banking cri-sis while many were expecting higher yields.Th

34、is led to a broad de-risking,and many managers were underinvested in H2,when fixed income,equities,and currencies exhibited some strong directional moves.Source:Bloomberg Finance L.P.,Julius Baer Investment WritingNote:Please see the Further Information section of this publication for more details o

35、n the indices used.Annual performance num-bers are in USD,except for equity regions that are calculated in local currency.EM=emerging markets,ex.=excluding,IG=investment grade.*As at the end of November 2023.Past performance is not a reliable indicator of future results.Returns reflect all ongoing c

36、harges excluding transaction fees.All investments have inherent risks,and investors may not recover their initial investment.200222023*5-year annualisedEquity long/short13.71%17.89%11.67%-10.13%6.57%7.47%Event-driven7.49%9.26%12.41%-4.83%6.00%5.90%Relative value7.42%3.38%7.59%-0.68%5.59%4

37、.61%Trading6.50%5.38%7.72%8.98%-1.19%5.42%Credit/income6.47%6.26%7.95%-2.62%5.81%4.70%Multi-strategy10.45%11.83%10.16%-4.14%4.87%6.47%Macroeconomy and strategy Following a turbulent year,softer inflation and strong seasonality effects supported markets into a year-end rally in 2023.So what is in sto

38、re for 2024,and how should investors position their portfolios at the beginning of this year?When it comes to economic growth,we expect neither a boom nor a bust.How-ever,we do envisage a transition from the current cycle into a new cycle.In equities,we would start the year with exposure to quality

39、growth and defensive stocks.In fixed income,investors should take advan-tage of the current interest rate environment and lock in attractive yields with quality bonds.Regarding currencies,we expect the US dollar to remain range-bound,and within commodities,we still like copper.11 Macroeconomy and st

40、rategy Approaching a new cycleWith inflation expectations falling,as was confirmed by Q4 2023 data releases,the pros-pect of central banks cutting interest rates is very real.We expect the first rate cuts to hap-pen in Q2 of this year,which would mark the beginning of a new cycle.In anticipation of

41、this,market sentiment should improve after a possibly nervous start to the year.Rate cuts are on the cardsMany factors have influenced the current cycle.Geopolitical events,including but not limited to the tragic wars in Ukraine and the Middle East,have had to be digested by financial markets.Prior

42、to this,the enormous external shock of the Covid-19 pan-demic led to the biggest policy support packages in history,which ultimately caused economies to over-heat,triggering record inflation levels across the globe.Central banks responded by raising rates at an unprecedented speed and scale.Economic

43、 growth in the first half of 2024 is set to be constrained,in our view,since we expect to see monetary policy on hold most likely until some-time in the second quarter.Thereafter,we expect the current cycle to come to an end when the first rate cuts are implemented by central banks,marking the begin

44、ning of a new cycle.This end-of-cycle envi-ronment could,however,result in some nervousness in the first few months of the year,because there are still a number of uncertainties,not least regard-ing the timing and extent of future rate cuts.There-fore,we would not be surprised to see a shaky start t

45、o 2024,but we expect that confidence will return as investors digest a positive outlook for 2025 and beyond.Approaching a new,more normal economic cycle20202024Source:Julius Baer Investment&Wealth Management SolutionsMacroeconomy and strategy 12Where will inflation settle?Inflation usually lags grow

46、th,i.e.there is generally a delay in terms of when inflation is visible in an econ-omy.However,in the current cycle,the effects have been immediate and enormous.Looking ahead,inflation should continue to fall closer to the comfort zone of central banks.The question now is when will inflation bottom?

47、The risk is that overly restrictive policies for a longer period of time could hamper the recovery of economies.Thus,we believe that West-ern governments and central banks will choose to accept slightly higher inflation of around 3%.The reasons for this include the post-crisis normalisation of deman

48、d and,more importantly,supply-side fac-tors,e.g.geopolitical tensions have led to a change in global supply chains,and demographic pressures in the workforce in the West and in China could limit the labour supply going forward and put upward pressure on wages.Inflation is coming down further but how

49、 far?EurozoneUnited States76543210Underlying inflation(%year-on-year)200020022004200620082000222024Source:Macrobond,Julius Baer ResearchNote:Underlying inflation is based on various measures of inflation from which common fluctuations have been removed using dynamic models.Unde

50、rlying inflation can be regarded as a leading indicator for headline inflation.Research FocusWant to find out more about the key macro trends,as well as our views across asset classes for 2024 and beyond?Take a look at our Research publication.13 Macroeconomy and strategy What does this all mean for

51、 investors?In our base-case scenario of a peak in long-term yields,as well as a soft landing of the US econ-omy in 2024,we see the year as a good one for developed-market equities overall,with the best returns potentially materialising in the second half of the year when monetary policy becomes less

52、 restrictive.To start the year,we prefer to keep expo-sure to quality growth and defensive stocks,as eco-nomic activity is likely to slow down in the first few months of 2024.In the quality growth space,we like information technology and communication stocks,and within defensives,we like the healthc

53、are sec-tor,Swiss equities,and European utilities.Then,at some point during the first half of 2024,investors should start to anticipate the transition from the old cycle to the new one and accordingly shift the focus of their portfolio to more cyclical stocks.In emerg-ing markets,companies are expec

54、ted to experience a significant reversal in the current decline of earn-ings growth,which has historically been a key driver of stock market returns.We thus maintain an Over-weight rating on Brazil1,India,South Korea2,and Taiwan3.In the fixed income space,there is still an opportun-ity to lock in th

55、e current attractive yields with qual-ity bonds,since the quality segment compensates investors comfortably above expected inflation lev-els.We therefore believe that the safer the issuer,the better.We particularly like Swiss-franc-denom-inated bonds,where investors could benefit from their safe-hav

56、en features.1Brazil:For local residents,the investments into the local market are bound by legal restrictions.2South Korea:For local residents,investments into the local market are bound by legal restrictions.The same regulation may also apply to foreign residents.3Taiwan:The services offered by Jul

57、ius Baer in local markets are restricted.Turning to currencies,the US dollar,which is the global reserve currency and a safe haven in times of crises,has been appreciating for 14 years.Thus,many are expecting an end to its upward trajec-tory.However,among other factors,the US dollar has been support

58、ed by a very resilient US econ-omy,as well as the fact that the US has become self-sufficient in terms of energy supply and is a leader with regard to technology in many industries.In 2024,we expect the US dollar to remain range-bound,i.e.it will continue to trade within a relatively tight price ran

59、ge.Regarding commodities,the shock waves unleashed up to 2022 by the pandemic,overheated manu-facturing sectors,adverse weather,and geopolitics diminished in 2023,and we believe that this super-charged cycle should continue to deflate in 2024.Generally,we expect that commodity prices will fall at fi

60、rst and then trade rangebound.In the cop-per market,however,rising demand on the back of growth in electric vehicle production and supply constraints in the years ahead could provide a boost to prices.VideoOur Head of Research Christian Gattiker shares our expectations for the global economy and key

61、 asset classes.The start of a new cycle in 2024 should open up many opportunities.Christian GattikerHead of ResearchMacroeconomy and strategy SpecialWhat if things do not go according to plan?As always,the world is complicated,and there are many moving parts.A number of differ-ent scenarios might ch

62、ange the market environment,underlining our preference for start-ing the year with exposure to the quality segments.Let us now take a look at a few of the possible setback scenarios.US recession jittersWhile our base-case scenario does not involve a recession in the US,there is a scenario where pote

63、n-tial cracks in the labour market could develop and growth could slip into negative territory.If the US were to fall into a recession,this would most likely also impact growth elsewhere.China fails to stimulate its economy sufficiently in H1 2024China is another source of concern,as the economy fac

64、es a number of structural headwinds due to very adverse demographic and economic developments.In fact,China is still the biggest uncertainty in terms of growth and inflation in 2024.All measures imple-mented by the government thus far have not been sufficient for the country to avert growth headwind

65、s.Crucially,what happens in China also has knock-on effects on the rest of the world,especially those Macroeconomy and strategy economies that have become heavily tied to the Chinese economy.It remains to be seen what stimu-lus measures the Chinese authorities will put in place and how effective the

66、y will turn out to be.US election turmoilAll eyes will be on the US presidential election that will take place in November of this year.Recent polls suggest that it will be a close call between the return of President Trump and the re-election of President Biden.In terms of the potential economic im

67、pact,a shift back to Trump would likely result in more pol-icy uncertainty,particularly in foreign policy matters.However,the overall confrontational stance of the current government towards China would likely not change significantly.If Biden were to be re-elected and have sufficient backing by Con

68、gress,there is a risk that fiscal policy would remain highly expansive,which might mean more financial stability risks and also a weakening of the US dollar.Geopolitical risksFinally,geopolitical events are among the other potential wild cards that we could foresee.Geopo-litical rivalries have retur

69、ned with a vengeance in the last few years,extending well beyond the strategic confrontation between the US and China.Thus,the new geopolitical landscape is complex and fragile.Secular OutlookWhat will drive the investment world in the years to come?Our CIO outlines the long-term trends shaping the

70、current decade.Fixed incomeOur key message in fixed income is simple:now could be the time to lock in the higher yields of high-quality issuers in order to benefit from them in the future.In line with this,we reiterate our call for Swiss franc bonds,especially(but not only)for investors who have a d

71、ifferent reference currency.For those seeking additional income from emerg-ing market hard-currency bonds,we point to Latin America,the Middle East,and investment-grade Asian corporate issuers.Finally,despite some hic-cups,we believe investors should take a closer look at the complex world of subord

72、inated bank debt and corporate hybrid bonds.19 Fixed incomeLocking in the higher yields of quality bonds for longerInvestors may need to consider a new approach to fixed income in 2024.Bond yields are at levels that investors only dreamed of two years ago,and across developed markets,they now offer

73、more income than inflation is likely to eat up again.As disinflation continues and nominal yield levels are attractive,now could be the time to consider locking in quality returns in traditional bond portfolios.Harvesting rather than hunting yieldsFor years,central banks,particularly in developed ma

74、rkets,kept interest rates low through quantita-tive easing strategies.Thus,the dominant strat-egy for fixed income investors was the pursuit of extra yield by chasing risky bonds.Now that yields have returned to normal levels and monetary pol-icy tightening in developed markets has peaked as disinfl

75、ation is setting in,the tide is turning.The key task for fixed income investors now is to secure a high income and manage reinvestment risk as opposed to focusing solely on interest rate risk.The likelihood of government bond yields rising substan-tially from current levels has diminished significan

76、tly,which provides a cushion for bond investors.Quality bonds offer comparably attractive yields againCapture the yields now to benefit in the longer term.Yield levels across major currenciesTime horizonTodaySource:Julius Baer Investment&Wealth Management SolutionsNote:Past performance and performan

77、ce forecasts are not reliable indicators of future results.The return may increase or decrease as a result of currency fluctuations.Fixed income20Focus on maturity managementWe expect the yields of medium-to-longer matur-ities to remain rangebound,while those of shorter maturities will likely declin

78、e over the course of 2024.Therefore,the focus is no longer primarily on squeezing out that extra bit of yield by investing in risky bonds but rather on ensuring that portfo-lios benefit from todays higher yields over the long term as well.Crucially,investors require a balanced approach to managing t

79、he credit and maturity pro-files of bond portfolios.High-quality bonds to become a major performance contributor in 2024While we believe that a global recession is unlikely to hit the world economy over the next 12 months,potential risks(e.g.an accelerating slowdown in China,political turbulence as

80、a result of the US presidential race,or rising geopolitical tensions)underline the uncertainties in our macroeconomic outlook.Coupled with a review of valuations across asset classes,with risk premiums generally tight,we believe that a significant fixed income exposure will be a strong contributor t

81、o the performance of diversified portfolios in 2024.Given the macroeco-nomic backdrop,and at current valuations,we would not recommend tactically increasing exposure to the riskiest fixed income segments at this time.The focus should rather be on prudent diversification and holding high-quality bond

82、s of varying maturities.Sleeping better with high-quality bondsThere is another argument in favour of maintaining exposure to high-quality bonds.After the substan-tial rise in yields over the last two years,these bonds now not only offer a good yield but also a buffer against any further rise in yie

83、lds.If yields were to rise again this year,they would have to increase quite significantly before investors would experience a loss over a 12-month investment horizon.Thus,the cur-rent yields provide somewhat of a safety layer.That said,the scenario of yields rising significantly again is not our ba

84、se case,even if the probability is not negligible.Nonetheless,this suggests that,unlike three to four years ago when we faced a low-yield environment and any rise in yield levels could have nearly irrevers-ible negative effects on portfolio performance,the timing of fixed income investments is less

85、of a con-cern for investors today.Yields offer carry and buffer against further yield rises0204060800180200-2-520072009200023Basis points%Yield buffer(r.h.s.)10-year US Treasury yield(l.h.s.)At current levels,10-year US Treasury yields would have to rise m

86、ore than 50 basis points before performance turned negative.Source:Macrobond,Julius Baer ResearchNote:Total return calculation simplified by neglecting roll down and convexity.The yield buffer reflects the difference between the cur-rent yield and the 12-month-ahead break-even yield,i.e.the yield ch

87、ange that would equal coupon income.Past performance and per-formance forecasts are not reliable indicators of future results.The return may increase or decrease as a result of currency fluctuations.21 Fixed incomePodcastStill not convinced?Find out why our experts like Swiss assets.Swiss-franc-deno

88、minated bonds a store of valueSwitzerland benefits from a politically stable environment,strong economic policies,and a well-developed legal system.Furthermore,the country boasts healthy government finances,which are characterised by low debt levels,a large trading surplus,and extensive currency res

89、erves.These strengths have made the Swiss franc one of the most resilient currencies over the last decades.If you then add in Switzerlands robust fundamentals and sound economic cli-mate,coupled with lower inflation,you get an appealing investment case for fixed income investors.To quote our Chief I

90、nvestment Officer Yves Bonzon:Each portfolio should have an allo-cation to Swiss assets.This is even more true if the investors base currency is not Swiss francs,despite the fact that Switzerlands nominal yields are lower than in many other countries.CIO MonthlySwitzerland is home to one of the stro

91、ngest equity markets,having outperformed global equities and gold through both inflationary and disinflationary periods.We highlight why Swiss assets deserve an allocation in every INVESTMENT INSIGHTS APPMarkets are always moving.So are busy investors.Enjoy our latest award-winning research and mark

92、et news from around the world.APPLEGOOGLE23 Fixed incomeSubordinated bank debt in regulatory conundrumsWithin a banks capital structure,there are mainly two types of subordinated debt,called tier-2(T2)and additional tier-1(AT1,also known as contin-gent convertibles CoCos).The latter are per-petual b

93、onds(i.e.they have no maturity date),and they rank below dated T2 debt.Furthermore,both forms of subordinated debt rank below other(senior)bonds in the event of a banks liquidation or bankruptcy,but they rank above a banks equity at least in theory.In times of extreme financial stress,some regulator

94、s have the power to write off certain types of deeply subordinated bank debt,starting with AT1 debt,while allowing shareholders to retain their equity investments.This situation has caused some controversy in the past.It is therefore crucial for investors to understand the terms and regulatory situa

95、tion of each such bond before investing.Given the potential pitfalls of such bonds,it is not surprising that the UK regulator,one of the strictest in the world,considers AT1 instruments to be unsuitable for retail investors.Nevertheless,investors would be well advised not to ignore the highly comple

96、x world of subordi-nated bank bonds and,for that matter,corporate hybrid(or equity-linked)bonds,as this type of debt offers higher yields and welcome diversifi-cation.While constant vigilance and an informed perspective are essential to navigate the com-plexities of this segment,it could be an attra

97、ct-ive addition to a portfolio,especially as long as issuers profitability and capital ratios remain favourable.Research FocusWe take a closer look at subordinated bank debt and highlight what investors need to know about the segment.Fixed incomeInterviewEmerging market hard-currency bondsIn this in

98、terview,Eirini Tsekeridou,from Fixed Income Research,talks about why emerging market hard-currency bonds look promising now and which areas we find the most appealing.You recently upgraded emerging market hard-currency bonds to Overweight.Can you please elaborate on the rationale behind this decisio

99、n?We consider bonds issued in stable global currencies(e.g.US dollars or euros)by emerging market issuers as an attractive diversifier for portfolios that include high-quality bonds from various developed markets.We have become more optimistic about the seg-ment,because we believe that the monetary

100、easing cycles in most emerging markets will continue this year.Our Overweight rating stems from our convic-tion that there are pockets of value in Latin America,the Middle East,and investment-grade Asian corpo-rate debt.This is also supported by our overall con-structive macroeconomic view for 2024.

101、So of the three regions you just mentioned,Latin America is the most recent one that you have upgraded to Overweight.Why do you like it?There are several reasons why we find Latin America attractive.We expect easing inflationary pressures and rising export revenues to improve the regions financial h

102、ealth this year,leading to a modest recov-ery in growth.Other favourable factors include our expectation of a stable US dollar and that the US will avoid a recession.In addition,we expect a decrease in political risk in the region this year,whilst geopol-itical conflicts are likely to remain concent

103、rated in other parts of the world.Finally,we consider current bond valuations in the region to be attractive.You also continue to like the Middle East,in particular the Gulf region.What is your investment case there?We see some key advantages for the region this year,which,altogether,make it an attr

104、active invest-ment prospect for 2024.Firstly,the Middle East is projected to continue to grow at a solid pace,which,combined with low rates of inflation,makes for a robust economy.Secondly,there is the subject of fiscal break-even oil prices,which are currently lower than actual oil price levels.Fis

105、cal break-even oil prices refer to the minimum oil prices per barrel that countries need to meet their planned spending levels while maintaining a balanced budget.So the fact that break-even prices are lower than current levels means that these countries achieve a budget surplus.Thirdly,the regions

106、large sovereign wealth funds adequately cover external debt and provide an important stability factor.And finally,for investors looking to invest in Asia,what would be your preference?In Asia,we prefer high-quality,investment-grade corporate bonds.Although the valuations are tight and borrowing cost

107、s are likely to remain elevated,the overall fundamentals are improving.Thus,in our view,the spreads for quality issuers have some further compression potential.With regard to the riskier parts of the regions bond universe,Chinas troubled property sector is likely to remain a drag.Research FocusThis

108、year will offer many opportunities for fixed income investors.Take a closer look at the segments our analysts like best.New and positive drivers emerge across emerging economies.Eirini TsekeridouFixed Income ResearchFixed incomeSpecialFour key takeaways for 2024Our Head of Fixed Income,Markus Allens

109、pach,discusses four pivotal factors that had a significant impact on the fixed income world in 2023,and he shares what insights we can derive from them.1.The resilience of the US economyAt the end of 2022,the bond market had been posi-tioned for a weak US economy and an anticipated series of interes

110、t rate cuts.However,incoming data soon pointed to very robust domestic demand,mainly fuelled by increased social benefits from the US government and an unexpectedly strong private investment response to the governments initiatives for energy transition and self-sufficiency in the semi-conductor sect

111、or.Hence,rather than rate cuts,there were four rate hikes in 2023 in February,March,May,and July which pushed bond yields higher.For 2024,budget constraints are tightly set,which points towards a likely fiscal withdrawal instead of a further fiscal impetus.More importantly,the slowing of US inflatio

112、n is no longer an optimistic projection but rather an economic reality.Consequently,the probability of the US Federal Reserve cutting rates is considerably higher for 2024.2.The slowdown of the Chinese economyIn contrast to the US,China did not live up to the markets high expectations.The rapid reop

113、ening of the economy following the complete removal of Covid-19 restrictions in late 2022 did not revive domestic demand nor the property sector the way the market had expected,and this had negative implications for the global commodities market.The prospects for China remain bleak,and we believe th

114、at the worlds second-largest economy will expand below potential in 2024,with the property market remaining depressed.That said,while the authorities have so far shown little appetite for an additional large-scale stimulus,it is reassuring to know that they still have ample room for a proactive stim

115、ulus,which could help protect the economy from a mean-ingful downside in the future.3.The demise of several banksThere were a number of bank failures and bailouts in the spring of 2023 for very different reasons.Fears of a broadening systemic crisis,however,did not materialise thanks to the swift in

116、tervention of reg-ulators and central banks.Nonetheless,the events sent shockwaves throughout the financial system.We regard the collapse of the affected banks as idio-syncratic events and are not anticipating a systemic crisis that would necessitate a shift to a more defen-sive stance in 2024.4.The

117、 reversal of quantitative easingFor years,Western central banks kept interest rates low and bought substantial amounts of government bonds,basically crowding out private investors.The lack of safe assets was viewed as a significant chal-lenge for institutional investors.Surprisingly,rather than prai

118、sing the return of the government bond supply,the market struggled to take on the influx of government bonds.This was due to still elevated government revenue shortfalls and the balance sheet reductions by central banks in the US,the UK,and the eurozone.We expect the supply of these bonds to remain

119、significant throughout 2024,even as government deficits decline in real terms.The fiscal push in the first half of 2023 brought more economic resilience and ultimately additional US interest rate hikes.The combination of the four factors described above has resulted in signifi-cantly higher bond yie

120、lds,and we believe that now is the time to lock in these yields and enjoy a higher income in the future.EquitiesBased on our expectations of a slowdown in global growth in early 2024,we anticipate that growth will pick up again towards the latter half of the year,with central banks becoming more acc

121、ommodative again as inflation continues to slow towards target levels.We maintain our preference for US assets,favour-ing quality growth stocks along with some defensive exposure,with cyclicals set to come back into focus ahead of the next economic cycle.EquitiesA broadening opportunity setIn line w

122、ith our view that the US economy will expand in 2024,albeit at a slower pace,the backdrop for mega-cap information-technology stocks remains positive,while defensive and cyclical stocks also warrant a mention.We spoke to Mathieu Racheter,Head of Equity Strategy,who outlines his key calls in the cont

123、ext of the changing economic cycle below.We expect a soft landing for the economy in 2024.What does this mean in terms of your equity strategy?As we enter the new year,we expect neither a boom nor a bust when it comes to economic growth.After last years almost unprecedented rise in US Treasury yield

124、s,our expectation is for a Goldilocks scenario of a soft landing in the US,shaped by stable growth and stable interest rates.This would allow bond yields to continue to fall and equity prices to rise fur-ther,which would be an environment favourable for growth stocks.Accordingly,we are generally con

125、-structive on equities,and within equities we main-tain a clear preference for US stocks with a quality growth bias.Following the strong performance of US stocks in 2023,do you still see them in pole position in 2024?Our clear regional preference for US over European equities is supported by the fun

126、damentally con-structive backdrop for US equities.The US equity market has seen broad-based improvements in recent months,as corporate earnings growth is now back in positive territory and risk appetite has recov-ered strongly from the shock sequel of events that included inflation spikes,a rate fre

127、nzy,geopolitics,and recession fears.The resulting resumption of a secular bull market in US equities could mark the start of a new attempt to push above their highs of 2021.In addition to our fundamental view,the technical picture speaks in favour of US equities relative to their European counterpar

128、ts.Further-more,the relative performance of US equities ver-sus safe-haven assets,such as gold and government bonds,continues to strengthen,which is a sign that investor sentiment is improving.As for the US dol-lar,we expect the greenback to remain rangebound in 2024.Equities32The relative performan

129、ce of US equities versus safe-haven assets continues to strengthen,which is a sign that investor sentiment is improving.Mathieu Racheter,Head of Equity StrategyArtificial intelligence stole the show in 2023,and the Magnificent 7 proved themselves worthy of the name.Does this mean that you will maint

130、ain your quality growth preference in 2024?In terms of styles,we like quality growth,with a par-ticular focus on information technology(IT)and communications companies,which make up approx-imately 40%of the S&P 500,due to their superior earnings momentum relative to other sectors.At the same time,th

131、ey benefit from stable or lower yields due to their relatively longer duration profile.The current super cycle of growth and innovation in artificial-intelligence(AI)technology has important implications for asset allocations given that,in the past,it has led to significant shareholder value crea-ti

132、on among those companies at the forefront of the movement.Now that we have moved into 2024,it appears as though there will be a continuation of the bull market in the US IT sector,as AI continues to establish itself in industries as diverse as healthcare,automobiles,advertising,and education.AI has

133、also been the driver of the rise in the Mag-nificent 7 stocks.This was demonstrated by their phenomenal rally in the first seven months of Piecing together our key equity calls for 2024ITQuality growthHealthcareCommunicationsCyclicalsDefensivesSource:Julius Baer Equity Strategy Research33 Equities20

134、23,when they dominated market returns as their bottom-up fundamentals continued to improve.Given their outsized impact on US stock market per-formance and their prevalence in many investment portfolios,their prospects are of particular impor-tance.We still like last years winners and see any possibl

135、e corrections as an opportunity to increase exposure to the group.Their continued strong free-cash-flow generation,coupled with their lead-ing positions in key growth markets,means that they remain front and centre when it comes to value creation.Given the dominance and outperformance of the IT and

136、communications sectors,many defensive markets were left behind in 2023.Is the outlook for defensives now more attractive?Absolutely.The more appealing valuations of defen-sives now offer an attractive entry point.For invest-ors keen to add a little robustness to portfolios,we advocate building up so

137、me defensive exposure,where we see opportunities in the areas of health-care,Swiss equities,and European utilities.With specific regard to the healthcare sector,we like it due to its inherent defensive characteristics and see opportunities in large-cap biopharmaceu-tical stocks,in particular.For exa

138、mple,companies offering drugs to combat obesity have been in the news lately,as the demand for their weight-loss treatments far outstrips the supply.As a longstand-ing outperformer,we believe the healthcare sector Magnificent 7:Continued growth at an attractive price0500232025E

139、Sales growth(CAGR)Mega-cap technology companies493 remaining S&P 500 companies%Source:FactSet,Julius Baer Research Note:Magnificent 7 mega-cap technology companies=Alphabet,Amazon,Apple,Meta,Microsoft,Nvidia,Tesla;reve-nue-weighted.CAGR=compound annual growth rate;E=consensus estimate.2020 figures a

140、re not included due to the pandem-ic-related special effects.Past performance and performance forecasts are not reliable indicators of future results.The return may increase or decrease as a result of currency fluctuations.VideoTune in to see why the Magnificent 7 continue to BEYONDMARKETSNot enough

141、 time to read investment research?We hear you.Tune in to our Beyond Markets podcast series to get our expert views and strategic inputs on market developments andinvesting trends from around the globe.APPLESPOTIFY35 Equitiesoffers the best long-term growth prospects among its peers.We also see furth

142、er value creation potential in the health insurance space,along with attractive investment opportunities in the area of MedTech,as higher costs for more orthopaedic and cardiovascu-lar procedures validate the case for positive Med-Tech momentum.The Swiss equity market should also not be over-looked,

143、since it represents one of the most defen-sive markets within the equity universe.Investors in Swiss stocks not only benefit from exposure to sta-ble and growing companies but also from currency appreciation.The Swiss franc is among the worlds strongest currencies and typically provides a hedge agai

144、nst global growth and geopolitical risks.In the longer term,we expect the Swiss equity market to remain a store of value,offering investors a compa-rably high degree of stability coupled with the pros-pect of long-term growth.As the year progresses and the new economic cycle emerges,will that finall

145、y be the moment when cyclicals make a comeback?After a potentially shaky start to 2024,confidence is expected to bounce back later in the year.Once the economy has reached its trough,the prospects for 2025 and beyond should be priced in by the second half of the year.Thereafter,we expect market par-

146、ticipation to broaden and would advocate tactically adding cyclical exposure in anticipation of a new economic cycle.Investors eager to increase their exposure to cyclical markets may wish to consider some of our preferred subsectors,which include automotives,semiconductors,machinery and equip-ment,

147、and transportation.PodcastEverybody is talking about the new weight-loss drugs.Hear what our experts have to say.Equities36Next GenerationAI front and centreNext Generation themes have been challenged lately due to fears of a global economic slowdown,which have led to downward revisions in their ear

148、nings forecasts.This is a reminder that while thematic investing typically addresses secular structural trends,it remains susceptible to short-term cyclical shifts,with the notable exception of artificial intelligence(AI).With most valuation metrics below their multi-year averages,we believe 2024 ma

149、y provide investors with opportunities to capitalise on these attractive valuations,and they could consider investing in our most preferred themes.For example,Cloud Com-puting&AI was,by far,the most successful theme of 2023 not only because of the groundbreaking technological advancements in AI but

150、also due to its impressive market performance.While AI will retain its role as an efficiency-enhancing technology,over the coming years its applications will be rolled out across almost every conceivable industry.The recent interest in generative AI(GenAI)technology,in particular,has provided the ne

151、xt leg up in equity markets,driven by mega-cap technology stocks.We have seen a pickup in the pace of innovation and the number of new product announcements in this area and have observed the ever-expanding ability of GenAI to solve increasingly complex problems.Furthermore,the monetisation potentia

152、l for devel-opments in AI makes it very appealing and gives us confidence about the themes long-term investment opportunity.Going forward,we expect the perform-ance of AI stocks to be driven by fundamentals and monetisation capabilities rather than merely by hype around the technology.Our view is th

153、at the AI race has only just started and that it will last for many years,in line with its ability to solve increasingly complex problems.Beyond AI,we see further opportunities in a number of other Next Generation themes.In Future Mobil-ity,we note that competition among car companies has intensifie

154、d,raw material costs have come down,Equitiesand sentiment has deteriorated much more than justified amid still soundly growing electric vehicle sales in the worlds key markets.Within our Future Cities theme,we see a strong fundamental back-drop for the building technology and efficiency seg-ment,e.g

155、.in relation to the rapid ageing of buildings in Europe,three-quarters of which are no longer energy efficient.Moreover,our Extended Longevity theme explores how our ageing global population presents investment opportunities due to the rise of chronic diseases,changing consumer preferences for impro

156、ving ones longevity and healthspan,and an increased demand for financial planning.Looking ahead,we remain confident about the potential of the structural trends that are driving our investment themes.The start of a new economic cycle in 2024 should open up many more oppor-tunities and,after a potent

157、ially bumpy start,reward those willing to take risks especially those who choose to be invested from the very start.Last years high-flyer theme of Cloud Computing&AI remains attractive given the strong structural and cyclical support,and valuations remain reasonable against this backdrop.Existing in

158、vestors should maintain their positions,while new investors should use tem-porary setbacks to build up their exposure.Equities38Deep diveA closer look at emerging markets and AsiaImproving market dynamics in Asia,excluding China,should provide attractive opportun-ities for emerging market equities i

159、n the second half of the year.We focus on India,while the winds of change in Japan are making its equity market look attractive again.Look-ing beyond Asia,Brazil,in particular,offers value on the back of an improving economic backdrop.Emerging markets offer compelling growth prospectsLast year,emerg

160、ing market equities fell short of investors expectations,delivering flat returns and significantly underperforming developed markets due to weaker growth in China,a sharp rise in US Treasury yields,and geopolitical uncertainties.As we start 2024,our outlook for emerging market equi-ties(excluding Ch

161、ina)is more optimistic given the better growth prospects for emerging market econ-omies in terms of both gross domestic product and corporate earnings relative to their developed mar-ket counterparts.Bullish on emerging markets excluding China8.7%19.1%15.2%30.5%01020304050Developed marketsEmerging m

162、arketsChinaEmerging markets excluding ChinaEarnings per share*%Source:Bloomberg Finance L.P.,Julius Baer Research Note:*Expected annual growth over the next two years.Past performance and performance forecasts are not reliable indicators of future results.The return may increase or decrease as a res

163、ult of currency fluctuations.39 EquitiesDigging deeper,our highest-conviction pick in emerging markets for 2024 is the Indian market.Indias structural transformation and growth trend remain intact,fuelled by a rising consumer market,a large youth population,and ongoing urbanisation,which is helping

164、to boost household spending.This positive outlook is further reinforced by weakening investor confidence in China,which puts India in a favourable position as a viable alternative to China in the eyes of global investors.Despite showing signs of gradual progress,China,the worlds economic powerhouse,

165、remains beset by problems,not least within its real estate sector.We thus remain on the sidelines,especially in the absence of any major game-changing economic stimulus.Outside of Asia,we see potential in Brazilian equi-ties,which currently offer a good entry opportunity at highly compelling valuati

166、ons.We believe that the benefits afforded by the lower interest rate environ-ment have not fully kicked in yet.VideoAs India is Asias sweet spot,we delve deeper into why it makes such a compelling investment case.Japan:A shift in monetary policy should boost stocksWith hopes that this year will mark

167、 the turn-ing point in Japanese monetary policy,market dynamics in Japan appear to be changing for the better.We see a number of opportunities in Japanese equities,which,beyond their cyc-lical nature,are now supported by the winds of change in the corporate landscape.This should lead to higher profi

168、tability and better value after significant stagnation in capital returns and should be a magnet for further inflows from domestic and international investors alike who are in search of alternatives to Chinese assets.We have upgraded Japanese equities to Over-weight due to several factors.We believe

169、 that the recent shift from deflation to inflation should benefit corporates and the broader economy.Furthermore,the Tokyo Stock Exchange has implemented several important reforms,which should result in improved governance,greater efficiencies,and more attractive corporate valu-ations.Lastly,improve

170、d fund flows from both foreign and domestic investors should provide a welcome tailwind for asset prices.Alternative investments In this chapter,we provide a brief overview,as well as our outlook,on our favourite hedge fund strategies.Relative value strategies and investment styles were our preferen

171、ce in 2023 and remain a top choice for 2024 as we transition to a new macroeconomic cycle that is accompanied by sharply diverging views in the markets.Among other strategies that we like,we think the time is also ripe for stressed/distressed credit(a substrategy of event-driven)on the back of some

172、weaker companies coming under intense pressure due to high financing costs.41 Alternative investments Reaping the benefits of diversification The diverse nature of the hedge fund universe means that suitable strategies,many well-aligned with our market outlook view,are available all along the invest

173、ment cycle.These offer sources of potential return that are not available to traditional strategies,thus adding diversification benefits to traditional portfolios.Our strategy focus in 2024We continue to favour relative value strategies and investment styles,which,among others,exploit mis-pricings i

174、n financial markets for comparable or cor-related financial instruments.The factors behind a mispricing can be macroeconomic in nature or related to financial market dynamics;they can also be corporate events or short-term supply and demand imbalances.Investment managers using these strategies take

175、long positions in assets that are deemed to be undervalued and short positions in those considered as overvalued in anticipation of a price convergence.As a result,profitability may be achieved irrespective of market direction,and a trade is frequently motivated by expectations of mean reversion.Rel

176、ative value strategies may gen-erate attractive and relatively stable returns,but they are not infallible,since unforeseen events and instances of illiquidity can make them fragile,with leverage having the potential to amplify losses.Equity long/short strategies with a market-neutral focus are also

177、well placed to potentially benefit amid growth jitters,irrespective of the broader market moves.Other effective strategies at present that are some-what more correlated to the market(i.e.directional)are trading strategies,especially discretionary trad-ing,as the markets continue to experience signif

178、i-cant macroeconomic changes.Moreover,in terms of event-driven strategies,the distressed credit substrategy is expected to benefit from the growing number of high-yield companies that are weighed down by the rise in financing costs.While the substrategy includes the term distressed,in reality it mea

179、ns hedge funds investing in both stressed(i.e.still performing but challenged)and distressed(i.e.non-performing/bankrupt)companies.In the subsequent sections,we will delve more deeply into our preferred strategies,highlighting recent market developments and our outlook for 2024.Investing in the righ

180、t hedge fund in this market environment could translate into steady and consistent returns that are not driven by the mood in equity and fixed income markets.Adrienne Jaersvall,Head of Fund AdvisoryAlternative investments Relative value strategies and investment stylesBenefiting from higher volatili

181、ty and ratesIn this section,we look at our favoured relative value strategies and investment styles,which are mostly market neutral.Their strategy approach means that they often run with plenty of cash on their balance sheet,which can now be invested at attractive higher short-term rates.Monetising

182、the start of a new cycleAfter over two years of increasing inter-est rates to lower inflation,central banks are expected to change direction in 2024 and begin to lower rates to encourage eco-nomic growth.Based on past experience,there may be instability in certain areas of the market as central bank

183、s transition from one monetary policy stage to another.One reason for this potential instability is that there is considerable uncertainty about the level of change in US interest rates,which is a crucial factor for financial markets.Currently,the federal funds target range stands at 5.25%5.50%.Howe

184、ver,expecta-tions for the end of 2024 vary considerably from moving it only slightly lower to as low as 3%based on inflation and growth forecasts for 2024,as at the time of writing.From an investment perspective,this means a rapid and massive repositioning of many portfolios over the course of the y

185、ear,as it becomes Alternative investments clearer what action the US Federal Reserve will ultimately take.When portfolios are repositioned,some securities are sold and others are bought with-out much consideration for price,which opens up relative value opportunities across the asset class spectrum.

186、The relative value substrategies that are best posi-tioned in this situation are fixed income relative value and cross-asset volatility arbitrage.There may also be some opportunities for macro-related discretionary trading managers who accurately pre-dict significant asset class movements in 2024.Re

187、levant strategies:Relative value and Trading discretionary trading(macro-related)Higher volatility and interest rates offer a great hunting ground for“relative value”strategies.Ivan Iliev,Julius Baer hedge fund expertEquity market neutral amid growth jittersWithin the equity long/short strategy,we p

188、refer those managers who have a market-neutral focus.They are often found within multi-manager platforms.This investment approach includes active trading(both long and short)in individual stocks.The objective is to iden-tify stock-specific catalysts that will result in the stock rising(long)or falli

189、ng(short),while also hedg-ing non-stock-specific risks at the market,sector,industry,and style levels.The strategy thrives in a more volatile environment.Considering that we expect a jittery start to the year amid a growth slow-down,including some recession concerns at times,market-neutral equity st

190、rategies could well be in the sweet spot,at least in the first half of the year.Fur-thermore,given that 2023 returns were,for most of the year,heavily skewed towards a relatively small number of stocks,more stocks should contribute to positive returns in 2024,which should also help the strategy to p

191、erform.Relevant strategy:Equity long/short opportunistic MOVINGMARKETSWant to know whats moving markets today?Tune in to Moving Markets,our daily podcast series where our experts discuss the latest market developments and put the headlines in perspective to set you up for the coming day.SPOTIFYAPPLE

192、GOOGLE45 Alternative investments Nature,politics,and economics driving commodities in 2024 tooCommodities can be a fertile asset class for directional and,at times,even for non-directional relative value-type strategies.This is mainly because a sharp change in price,either positive or negative,is so

193、oner or later followed by a countermovement driven by fundamentals.For example,as prices rise,supply enters the market,and assuming that demand remains unchanged,prices subsequently fall again.Furthermore,com-modities are,and will always be,subject to the vagaries of global tensions,and we have seen

194、 more of these in recent years.Weather-related phenom-ena,such as El Nio,can also lead to disruptions.Lastly,2024 looks set to be one of the busiest ever in the emerging market electoral calendar,with elec-tions taking place in major commodity-importing and commodity-producing countries,which can le

195、ad to market uncertainties.As commodities experi-ence bouts of volatility and sometimes sharp moves,hedge funds that trade commodities should be well positioned to take advantage of opportunities that arise throughout the year.Relevant strategy:Trading commoditiesHigher short-term rates equal higher

196、 strategy returnsEvent-driven merger arbitrage is an example of a strategy that directly bene-fits from higher rates.Its aim is to profit from the price difference between a target companys trad-ing value following a takeover announcement and the acquirers offering price at deal completion.The stock

197、 of the firm being acquired is expected to trade at a level that implies a return which exceeds that of short-term deposit rates,otherwise there is no value-added return for the hedge fund.Thus,higher short-term rates translate into a higher return for the strategy.Furthermore,trading opportunities

198、arise when the likelihood of a deals success changes,such as when regulators signal potential obstacles that could jeopardise the takeover.This would then lead to the stock moving further away from the announced takeover price in the short term.Correctly assessing these situations,for example in Mic

199、rosofts acquisi-tion of Activision last year,could yield even higher expected returns.Going forward,deal activity is expected to be supported by ample resources in private equity,sovereign wealth funds,and financially strong cor-porations.Sectors like biotechnology may see increased merger and acqui

200、sition deals due to lower valuations,with large-cap biopharmaceutical com-panies seeking new drug pipelines for future growth driving this anticipated uptick in activity.Relevant strategy:Event-driven merger arbitrageAlternative investments Directional credit strategiesStressed and distressed situat

201、ionsIn this section,we explain why directional credit strategies in stressed and distressed cor-porate situations are at the beginning of an attractive investment cycle for hedge funds.Investment opportunities due to higher refinancing costsOur fixed income analysts suggest avoiding high-yield debt

202、for now due to relatively low spreads,the anticipation of rising default rates,and the fact that many companies cannot cover their cost of capital.In this environment,the opportun-ity set for event-driven hedge funds that invest in stressed and distressed situations is expected to increase.Some comp

203、anies with floating-rate debt have already seen their funding costs rise,and others will have to refinance at much higher rates than they are likely to be able to sustain.Indeed,it is estimated that around USD 1 trillion in debt from companies with poor credit ratings will need to be refinanced over

204、 the next five years.Event-driven hedge funds seek to monetise such situations by investing in stressed(i.e.still performing but challenged)and distressed(i.e.non-performing/bankrupt)com-panies.This may involve acquiring the debt of a bankrupt company at a discount,converting some of that debt into

205、equity(loan-to-own),restructuring the company,and finally selling it or listing it on a stock exchange.Relevant strategy:Event-driven distressed/stressed creditAlternative investments Event-driven hedge funds could benefit from the rising maturity wall202420252026202720282029300250200150100500US hig

206、h-yield bonds maturing annually(USD billion)Source:ICE Bank of America Merrill Lynch,Bloomberg Finance L.P.,Julius Baer Investment&Wealth Management SolutionsAlternative investments 48SpecialThe six core hedge fund strategiesThe table below provides a brief explanation of the six core hedge fund str

207、ategies and our specialists view on them.Strategy and its variationsOur specialists viewWhat it isEquity long/shortInvests in both long and short positions in equity securities.FundamentalUnderweightSeeks to take a long position in underpriced stocks while short-selling overpriced stocks.Opportunist

208、ic tradingOverweightSeeks to profit from inefficiencies and dislocations in financial markets at a macroeconomic,market-sector,single-stock,factor,or foreign-exchange level.Event-drivenInvests in companies undergoing corporate events such as mergers,spin-offs,and bankruptcies.ActivismNeutralSeeks to

209、 exploit pricing inefficiencies that may occur before or after a corporate or news event.Distressed creditOverweightSeeks to identify credit securities where there is a near-to-medium-term event,such as an asset sale,refinancing,or merger,or where an operational or financial turnaround is anticipate

210、d.Merger arbitrageOverweightSeeks to exploit market inefficiencies before or after a merger or acquisition.Special situationsNeutralSeeks to exploit opportunities that arise throughout a companys life as a result of extraordinary,or special,corporate events.49 Alternative investments Strategy and it

211、s variationsOur specialists viewWhat it isRelative valueInvests in securities from the same or a highly comparable issuer that are mispriced relative to each other.Capital structure arbitrageOverweightSeeks to profit from the relative mispricing across different security classes from the same compan

212、ys capital structure.Convertible arbitrageNeutralSeeks to profit from a pricing discrepancy between a companys con-vertible bonds and its underlying stock.Fixed income relative valueOverweightSeeks to profit from relative value dispersions of credit instruments with the same or similar risk profile.

213、Volatility arbitrageOverweightSeeks to profit from the difference between the forecasted future price volatility of an asset and the actual price paid.Quantitative equityOverweightAlso known as data-driven investing,seeks to identify pricing(mean-reversion)relationships and capitalise on them.Tradin

214、gInvests in both long and short positions in financial markets based on a top-down view of global markets.CommoditiesOverweightSeeks to generate returns in commodity markets using technical ana-lysis and fundamentals.It is a non-benchmark-based approach.DiscretionaryOverweightSeeks to generate retur

215、ns across asset classes using technical analysis and fundamentals.It is a non-benchmark-based approach.SystematicNeutralSeeks to generate returns using algorithmic trading programmes,also known as methodical trading.Credit/incomeInvests in debt securities and other income-producing assets to generat

216、e income and capital appreciation.Credit long/shortNeutralSeeks to generate profit from combining straight bonds and hedge overlays(mainly hedging credit risk and interest rate risk).Structured creditNeutralSeeks to create value from pools of various(illiquid)loans.Reinsurance/insurance-linked secur

217、itiesNeutralSeeks to earn returns from exposure to reinsurance catastrophe risks.Multi-strategy Multi-strategy-oriented hedge funds seek to generate income by mixing some or all of the main hedge fund investment styles.Source:Julius Baer Fund Offering,Julius Baer Investment WritingFurther informatio

218、n51 Further informationFurther informationPlease find below further information on benchmarks and indices used in the review sec-tion of this publication.Market reviewEquity regionsRegionIndexEmerging markets excluding ChinaMSCI Emerging Markets excluding China Net TR USDSwitzerlandMSCI Switzerland

219、NR CHFEurozoneMSCI EMU Net TR EURChinaMSCI China Net TR USDUSAMSCI USA Net TR USDJapanMSCI Japan NR JPYUKMSCI United Kingdom NR GBPEquity stylesStyleIndexQualityMSCI World Quality Net TR USDValueMSCI World Value Net TR USDGrowthMSCI World Growth Net TR USDHigh dividendsMSCI World High Dividend Yield

220、 Net TRCyclicalsMSCI World Cyclical Sectors TR USDDefensivesMSCI World Defensive Sectors TR USDSmall capsMSCI World Small Cap Net TR USDLarge capsMSCI World Large Cap Net TR USDEquity sectorsSectorIndexInformation technologyMSCI World Information Technology Net TR USDMaterialsMSCI World Materials Ne

221、t TR USDOil&gasMSCI World Energy Net TR USDIndustrialsMSCI World Industrials Net TR USDCommunicationsMSCI World Communication Services Net TR USDHealthcareMSCI World Health Care Net TR USDFinancialsMSCI World Financials Net TR USDConsumer cyclicalMSCI World Consumer Discretionary Net TR USDConsumer

222、defensiveMSCI World Consumer Staples Net TR USDReal estateMSCI World Real Estate Net TR USDUtilitiesMSCI World Utilities Net TR USDNote:EMU=European Monetary Union,NR=net return,TR=total return52Further informationFixed incomeSegmentIndexUS government bondsBloomberg US Treasury Total Return Unhedged

223、 USDUS TIPSBloomberg US Treasury Inflation Notes TR Index Value Unhedged USDUSD investment-grade corporate bondsBloomberg US Corporate Total Return Value Unhedged USDUSD high-yield bondsBloomberg US Corporate High Yield Total Return Index Value Unhedged USDUSD floating-rate notesBloomberg US Floatin

224、g Rate Notes TR Index Value Unhedged USDEM hard-currency bondsBloomberg Barclays EM Hard Currency Aggregate TR Value Unhedged USDEM local-currency bondsBloomberg Barclays EM Local Currency Government TR Unhedged USDCommoditiesCommodityFutureBrent crude oilGeneric 1st CO Future,ICE Futures Europe Com

225、moditiesUS natural gasGeneric 1st NG Future,New York Mercantile ExchangeGoldGeneric 1st GC Future,Commodity Exchange,Inc.SilverGeneric 1st SI Future,Commodity Exchange,Inc.PlatinumGeneric 1st PL Future,New York Mercantile ExchangeAluminiumGeneric 1st LA Future,London Metal ExchangeCopperGeneric 1st

226、LP Future,London Metal ExchangeIron oreGeneric 1st SCO Future,Singapore ExchangeHedge fundsStrategyHedge fund indexEquity long/shortHFRI Equity Hedge Total IndexEvent-drivenHFRI Event-Driven Total IndexRelative valueHFRI Relative Value Total IndexTradingHFRI Macro Total IndexCredit/incomeHFRI Credit

227、 IndexMulti-strategyHFRI Fund Weighted Composite IndexNote:1st=front-month futures contract,EM=emerging markets,HFRI=Hedge Fund Research Index,NR=net return,TIPS=Treas-ury inflation-protected securities,TR=total returnImportant legal information54Important legal informationImprintAuthorsMichael Rist

228、,Head Investment Content&Campaigns,1Roman Canziani,Head Investment Writing,1Bernadette Anderko,Investment Writing,1Jan Bopp,Investment Writing,1Lucija Caculovic,Investment Writing,1Helen Freer,Investment Writing,1Jacques Michael Rauber,Investment Writing,1Jonti Warris,Investment Writing,11 This auth

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