Insights

Invest conservatively with freely available wealth management funds

Wealth management funds are actively managed mixed funds that focus on bonds, equities, and alternative investments such as real estate and are based on a systematic investment process. They are particularly suited to investors who want to broadly diversify their investments with a single transaction without having to deal with the daily fluctuations on the financial markets – knowing that their investment is managed professionally and on a risk-optimized basis at all times.

Two main problems mean it is anything but easy for investors to make investments at present. Firstly, interest rates remain at very low levels due to the policies of low interest rates being pursued by central banks. Secondly, the global bond market and several equities markets are trading close to their highs again after the temporary correction on account of COVID-19. It is therefore more important than ever not only to keep risks in check, but also to add diversified sources of return to a portfolio. These two central components have been firmly anchored in the structured investment process of Credit Suisse Asset Management’s Multi-Asset Funds for some time, with the aim of offering clients fund solutions that are tailored to the respective market environment at all times.

Privilege funds – a sustainable investment

The Privilege fund family is managed according to this approach. The funds invest globally in bonds, equities, and real estate. Investments in Switzerland are clearly overweighted – at least 70% of investments are made in securities denominated or hedged in Swiss francs. The funds also largely follow the strict rules on risk and diversification, as anchored in the Occupational Old Age, Survivors’ and Invalidity Pension Provision Act (OPA) and the associated ordinances. They therefore invest just as conservatively as Swiss pension funds and other pension products. By contrast, however, they are freely available.

The Privilege funds also adopt a sustainability approach. Besides excluding problematic investments, this also increasingly takes account of environmental, social, and governance (ESG)1 factors, following the Credit Suisse Sustainable Investing Framework.2 Studies have repeatedly demonstrated that companies leading the way in terms of ESG enjoy above-average growth over the long term. The data leave little doubt that companies with a superior ESG profile exhibit a better and more stable performance.

One fund family, four risk profiles

The Privilege concept is implemented in four different risk profiles – Privilege 20, Privilege 35, Privilege 45, and Privilege 75. The figures relate to the strategic equity weighting. The higher the percentage in equities, the higher the expected return – but also the risk. Privilege 45, the oldest member of the Privilege family, was launched more than 20 years ago. Its positive performance3 is a clear indication that the fund concept has proven itself.

Build up assets while you are young, remain defensively invested at retirement age

Due to their broad diversification and defensive orientation, the Privilege funds represent an ideal long-term core investment that is well worth considering for young and old alike. For younger investors, the funds are ideal for building up assets, whether it be for further education, home ownership, or a private pension. They make it possible to participate in the financial markets even with small amounts – using a professional strategy that includes sustainability criteria and continuously adapts to the market situation. This being said, they are just as interesting for investors who are about to retire and want to transfer investments out of Pillar 3 and into unrestricted assets with a similar strategy.

Structured investment process as a central component

As previously mentioned, wealth management funds are based on a structured investment process. At Credit Suisse Asset Management, this consists of four steps.

First of all, we determine the Strategic Asset Allocation (SAA), the long-term asset allocation of the individual funds to the different asset classes. The central parameters here are the specific fund profile and our longer-term market assessments. The SAA is reviewed annually based on our updated capital market expectations and adjusted accordingly if need be. This review is carried out for around 70 investment classes based on return, risk, and correlation forecasts for the next five years. We consider structural economic changes, new markets, and further factors that have a lasting impact on future risk and returns. Material long-term changes, such as the current environment of low interest rates or the growing significance of emerging markets, highlight how important it is to incorporate such forward-looking criteria.

In a second step, we determine the Tactical Asset Allocation (TAA). This involves giving individual asset classes a short-term underweighting or overweighting within the ranges specified in strategic asset management. The goal is to use investment opportunities arising in the respective market environment in individual asset classes, regions, or currencies. In practice, we regularly adjust the TAA, often on a weekly basis, according to the changed market conditions.

In a further step, we look at the portfolio construction and the precise and efficient implementation of the TAA at security level. The investment instruments are selected on the basis of Credit Suisse Asset Management’s in-depth and long-standing expertise. In addition, the ESG selection criteria mentioned above are used for the funds geared toward sustainability. The high investment volumes on account of our broad product range enable trading at low institutional transaction costs. Where possible, the target investments are optimized for return after tax, an aspect that is relevant above all for global investment strategies.

The fourth step in the investment process concerns controlling risks. We focus here, for example, on volatility, liquidity, and correlations. This overall monitoring of the portfolios takes place continuously in the background. The liquidity of the underlying investments is especially important; as wealth management funds offer daily liquidity for investors, the large majority of the target investments must also be liquid – the relevance of this maturity matching was made abundantly clear during the 2008 financial crisis.

High transparency for investors

Wealth management funds are an ideal way to meet various requirements. For example, it is easy for an investor to complete their tax declaration as they only have to present the detailed information on the fund position. Furthermore, the funds meet the increased requirements for cost transparency, since the net asset value (NAV) represents the net assets after deducting all costs in the fund at any point in time. Precise and transparent fund details are also available at all times in the form of the semiannual and annual report, the fact sheet (updated on a monthly basis), our monthly reports, and the basic information sheet. In addition, Credit Suisse Asset Management draws up specific sustainability reports for the Privilege funds on a monthly basis.

Asset classes for private investors and institutional investors

Alongside private investors, institutional investors such as foundations or pension funds are investing more and more in wealth management funds, attracted in particular by the high transparency of the funds. Credit Suisse Asset Management offers various asset classes geared toward investor requirements.

Use opportunities with strict investment discipline

It has been demonstrated once again this year that the financial market can suffer a strong correction, but then later on also offer opportunities. However, in many cases, investors do not exercise enough discipline in terms of their investment horizon in such phases. The flood of information on the financial markets often misleads investors into concentrating on the latest news. Scared of suffering losses, they frequently sell prematurely and therefore miss out on the ensuing market recovery. Yet experience shows that around 80% of investment success is based on long-term strategies – in other words, the relative weighting of asset classes such as equities or bonds – and not on short-term decisions, for example in favor of or against certain securities. Remaining invested over the long term is therefore a central tenet of investment discipline.

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