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Global CIO Podcast: "It seemed prudent to protect some gains."

All rallies eventually take a pause, and the one in which equities recovered significant ground in the second quarter is no exception. Since mid-June, equity markets have largely trended sideways, with even positive economic surprises unable to spark sustained momentum.

Uncertainty over the strength of the recovery from the coronavirus pandemic amid worsening outbreaks in the Americas helped to keep a lid on performance and investors' risk appetite.

In the Investment Committee, we turned neutral on equities in late June, as we recognized the altered backdrop. News on the virus front, the Q2 earnings season as well as the usual low-liquidity summer lull may well lead to volatility spikes in the weeks ahead, and thus it is prudent to retain our neutral allocation to equities. However, being neutral does not mean that there are no opportunities. A neutral position means that our equity allocation is at its long-term strategic level. In a balanced portfolio that means a quota of 45%. In the medium term, equities continue to offer further upside potential, particularly given that we expect central banks to uphold their monetary policy support for quite some time to come.

Listen to the new House View podcast with Nannette Hechler-Fayd'herbe
Chief Investment Officer – International Wealth Management

We have also just scaled back our allocation to high-yield bonds to neutral. Not only because high-yield bonds are more vulnerable to an increase in risk aversion, but particularly due to the impending expiration of the US Federal Reserve’s facilities to support credit markets in September. Despite these well-considered steps to reduce risk in our positioning, we maintain overweight positions in investment-grade bonds, emerging market hard currency bonds and commodities. We also believe that the coronavirus crisis strengthens the relevance of our Supertrends.