Month: April 2022

Good Morning Ladies and Gentlemen

Last week I mentioned in my weekly that «When managing assets, we have to make sure not to get carried away by always the same information overflow the media is feeding us daily. Instead, strategy, structure, discipline and patience should reign, not daily media noise.» Today, I want to discuss his recipe for managing assets with my Partner Hans, responsible for managing our Incrementum All Seasons Fund (IASF).

Please elaborate to our readers on your investment style:

We are generalist investors, covering all asset classes globally in our pursuit of real returns. Since both the economy and financial markets go through seasons, IASF’s asset and currency allocation is embedded in our top-down macro analysis. We prefer direct portfolio investments, and our picks are value-driven, occasionally with a contrarian bias. In addition, we look for favourable economic trends or investment themes that may provide tailwinds to our portfolio companies’ business dynamics. We prefer hard assets over intangibles and distributions over accruals. We manage the portfolio actively, including the use of derivatives to navigate our overall asset class and currency exposure and the harvesting of volatility premium income.

According to your 30 years of experience in asset management, what are the three key topics every investor must keep in mind?

Admittedly, I find it difficult to narrow this down to 3 topics. Since I joined Incrementum AG in 2019, I have been writing a regular investor letter labelled “Seasonal Reflections”, which can be found in the Journal on our homepage. Its appendix section records how eight investment lessons shape IASF portfolio management. If I had to narrow these down to 3 topics that universally apply to investors, I would say:

Know why you are investing: Are you making a call on valuation, following a trend, or basing your decision on technical analysis? – And pay attention to how your investment develops to what you would have expected so that you can take remediate action if necessary.

Strive for diversification, i.e. never put all your eggs in one basket, and make sure your baskets do not all sit in the same cart (or, in financial jargon, look for a combination of lowly correlated assets).

Lastly, and perhaps most importantly, learn to handle the greed and fear aspect of investing.

The Incrementum All Season’s Fund was very successful over the last three years, and it is even up almost 30% in 2022 so far. How is this possible?

IASF is a global strategy fund, which invests independent of a benchmark, and thus can deviate widely from what passive and index-driven investment styles would allow. We have long argued that the secular debt cycle is peaking and will lead to a significant rise in inflation. By allocating significant portions of our portfolio to inflation-sensitive assets and managing overall equity and currency risk well, we achieved the results you mentioned above, which has led the fund to be ranked the best performer out of 1355 global peers over the past 12 month.  

The Incrementum All Season’s Fund is not a Hedgefund, yet you do have the possibility to go short for hedging purposes; what is the process behind your hedging strategy?

IASF is indeed a long-only UCITS fund, though we can use index hedges to manage our overall allocation levels in this framework. I have long considered financial markets excessively priced, and thus we have used equity index shorts to reduce overall equity exposure in the fund, initially in late 2019 / early 2020. These were eliminated by the time equity markets made their Covid-lows in March 2020, but as equity markets resumed their rally, we have gradually reduced our net equity exposure once again by increasing our shorts, which has served us well this year as our long book rallied while our shorts also added value. Ultimately, we will always use all tools available to us to seek absolute and real, i.e. inflation-adjusted returns for our investors.

Last but not least, how do you see financial markets evolving in the coming months?

Disregarding current geopolitical issues, our core thesis these past few years has been that we have witnessed a second growth stock bubble in my career. Nevertheless, as inflation makes a comeback, nominal rates and thus cash flow discount factors rise, and with bonds continuing to offer profoundly negative real yields, we expect this to lead to a rotation out of growth into value stocks, while hard assets will increasingly come back into favour. So far, this has been playing out neatly. However, with the inflation tax at record levels, the pressure on central banks to fight inflation by tighter monetary policy risks is taking the punch bowl away that has sustained financial markets over the past decade. Any past attempt to raise nominal rates has caused a decline in risk asset prices, and hence I expect equity markets to make new lows over the course of the year, and the rotation from growth to value and the rally in commodity markets to continue. This will continue to provide attractive opportunities for active and truly index-independent investors.  

Thank you, Hans! 

Many thanks, Hans, for the insight! If my readers are interested in the product, they can find additional information under:
https://www.incrementum.li/en/investment-funds/incrementum-all-seasons-fund/

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, peace!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen,

Last Monday, I returned from a short trip to Singapore. It was my first visit to the Far East in more than three years, and the experience was an interesting one. I used to travel to the Far East a lot and have been to Singapore many times. Life in the Far East is in many ways different from life in Central Europe. For today’s Stefan’s weekly, I would like to briefly elaborate on some differences in current issues. I do not intend to judge and want merely to describe what struck me most.

Covid-19     

Covid-19 still is an essential topic in Singapore, but since the beginning of April, vaccinated people can enter the country without any problems. However, masks are still mandatory indoors, and when entering a building, one has to prove the vaccination status, the most efficient way of doing that is via an app provided by the local Ministry of Health.

Three Things

Vaccination rates in Singapore are very high. Over 91% of Singapore’s entire population have at least been vaccinated twice, and over 72% have received a booster shot already. I noticed three striking differences compared to life in Liechtenstein or Switzerland.

First Striking Difference

Taking a vaccination seems no big deal; people just do it. They want to go out, eat and drink, go shopping and enjoy themselves. If this requires a vaccination, they take one. In this respect, the people of Singapore seem to show a rather pragmatic approach, certainly also «motivated» by their government.

Second Striking Difference

The in the Western European media omnipresent attack by Russia on Ukraine is covered more subtly in the Singapore media. The local media certainly covers the war; however, never to the extent, I am used to by the German-speaking media in Central Europe.

Third Striking Difference

Shopping is massive. Every day, you will see people waiting in lines in front of shops like Hermes, Louis Vuitton, Channel, Dior, Rolex, Omega, and other luxury brands. I spoke to a salesperson selling watches at the airport. She told me that they were almost sold out. They could sell more watches but do not receive all they have ordered.

What did I take home from my trip for our business of managing assets?

It helps change the perspective from time to time. So, for example, while Covid-19 was and still is a horrible virus, while the war on Ukraine by Russia caused and still causes the lives of thousands of people, while inflation may hit the average family harder than expected, in other parts of the world, the focus may be on different topics or if on the same, maybe not quite as pronounced or on the contrary more pronounced (as for Covid-19 in China) as over here, in the centre of Europe. When managing assets, we have to make sure not to get carried away by always the same information overflow the media is feeding us on a daily basis. Strategy, structure, discipline and patience should reign, not daily media noise.

Next Week

Now, Ladies and Gentlemen, holding cash on an account for an extended period is a value-destroying exercise. Cash is absolutely no good store of value! I would like to discuss exactly this topic with my partner Hans-Günter Schiefen and see if he is willing to share his recipe to perform in highly volatile markets and an unstable environment.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful Easter weekend, and above all, peace!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen,

The other day I read an intriguing article, and one of the key sentences to me was the following: «those who expect guidance or inspiration from the government have only themselves to blame; true liberals are those who think and steer without an instruction manual within what is legally possible and socially decent, and justifiable.»

French Presidential Elections

Purchasing Power was an essential topic in Marine Le Pen’s election campaign, and it helped. Many Frenchmen are concerned about rising energy and other prices, and Marine Le Pen promised to ease the pain of rising prices if elected by lowering taxes on fossil combustibles, and it seems she was successful as she continuously gained ground on President Macron throughout the campaign.

Some Reader’s Feedback to my Weekly on Purchasing Power

«At least some of the men in the street have already woken up. For example, a company in the UK supplies anyone, but primarily the government and the likes of the Antarctic Survey, with freeze-dried 25-year lifespan foods. Their six months for person freeze-dried food pack has gone up in price from £800 to £1100 in four months. Another company that sells sealable Mylar bags with de-oxygenating tablets for storing small amounts of food for long periods, which used to only supply trekkers and campers, has been out of supplies and shut now for over two weeks. I remember seeing Jim Rogers interviewed once, and he said, “You do not need to be clever; you just need to go around with your eyes open and questioning.» Feedback by Bob.

«Yes, I see the loss of purchasing power as a massive problem in the coming years. In my experience, prices go up and not down. So I am protecting my purchasing power by putting away some silver (poor man’s gold).» Feedback by Geo.

«Yes, Stefan, purchasing power is bound to become an issue in the short to medium term and fits with currency devaluation from the deluge of fiat currency creation and inflation. One can look at extreme examples such as Zimbabwe, where purchasing power was reduced to almost zero due to unbridled money printing. The only hope for the developed nations is that inflation declines as economic growth slows, which is not a very attractive scenario.» Feedback by David.

Thank you very much, Gentlemen, for your feedback!

Back to the French Elections

Ladies and Gentlemen, in something over a week, we will know the outcome of the French Presidential Elections. If Marine Le Pen was elected, we might face a «FREXIT». This is because Marine Le Pen claimed for years that if she were going to be President of France, France’s relationship with the EU would have to be reassessed. A potential FREXIT would most probably have a significant impact on the value of the Euro and on purchasing power. I have difficulties believing purchasing power would increase in such a scenario, at least not in the short- to medium-term.

…and Politics in General

In recent years, I seem to have noticed that whether a politician is a genius or a failure is becoming less and less critical, as party affiliation increasingly determines the success or failure of a politician or her/his political campaign. This is, I am convinced, dramatically bad for society!

Last but not Least

As per Wednesday’s survey, the bullish expectations of U.S. private investors fell to 15.8% (one of the lowest numbers ever) versus 24.7% in the previous week. In April 2005, that number had dropped to 16.5%, which represented a low in the S&P 500. Ladies and Gentlemen, when confidence is low, potential gains often are high.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful Easter weekend, and above all, peace!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen,

The largest homogeneous global investor is the cohort of pension schemes. Pension schemes invest the funds entrusted to them either directly or via theme or style based mandates or funds from local but predominantly global providers.

Money flow

Currently, it looks as if global pension schemes will see monthly inflows of fresh capital at least until the largest cohorts of the babyboomer generation are sent into retirement. Why is this important, you may ask. I believe this is a widely neglected fact. Even if we see capital moving out of financial assets, i.e. markets, because of fears of war, inflation, economic downturn, etc., fresh capital piles up every month, sitting on the sideline, waiting to be invested eventually. At the end of the day, it is always money flows that make an asset move up or down.

Does this mean

Does this mean crashes can not occur? No, of course not, but it merely means there is always a fair chance for asset prices to recover due to money flows, as long as there is nothing wrong with the underlying business.

What about financial forecasts and research?

Financial forecast and research help us understand a business, company, sector, macroeconomic environment, etc. However, the point is that no one can predict the course of a market, asset class or single asset with certainty. Therefore, analysts’ forecasts are expressly not suitable as an “instruction manual” for any sort of trading that investors should follow uncritically. On the other hand, research can make a solid educational contribution to market participants.

In common sense, we trust

Ladies and Gentlemen, if pension schemes represent the most significant homogenous market player and if this market player receives monthly net new inflows, then There Is No Alternative. TINA, as I read the other day, Ladies and Gentlemen, because this time is no different to other times, no matter what calamities occur in the short to medium term. Investing needs capital, a solid strategy, patience and some common sense. And a reasonable investment strategy should somehow be balanced and include more than one asset category and even generate positive cash flows, at least in my opinion. The magic word here is certainly yield harvesting.

Last week’s Stefan’s weekly

I received many messages regarding my last weekly on the topic of purchasing power during the imminent presidential election in France. I will share with you some of the key messages I received next week. Until then, we should have a first impression of who will become President in France for the next five-year term. The candidate Marine Le Pen heavily exploited the topic of purchasing power, and it was interesting to see how she gained ground on President Macron in recent polls.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, peace!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li

Good Morning Ladies and Gentlemen,

Ahead of the presidential election in France, the Corona pandemic has slipped far down voters’ worry barometer.

Presidential Elections in France

While there seems to be less interest in the current presidential election in France than in the presidential decision five years ago, one can still gain knowledge from polls and statistics during this period. According to Ipsos, 75 per cent said they were interested, 18 per cent were moderately interested, and 7 per cent were not interested. Interest is thus apparently four percentage points lower than at the same time before the 2017 election.

Fine, but what can we learn from the French Presidential Elections

In the presidential election in France in a bit more than a week, purchasing power is the overriding issue for most voters. For 58 per cent of them, the issue is one of the three most important, the opinion research institute Ipsos reported in Paris on Monday. In second place comes the health system (27 per cent) and in third place the environment (25 per cent), followed by immigration and pensions (24 per cent each), the Ukraine war (23 per cent) and social inequality (19 per cent). For only eight per cent of respondents, the Corona pandemic still plays a significant role, and unemployment (nine per cent) is of only moderate interest given the recovering economy in France.

Why would I mention this

France is one of Europe’s leading economies, a member of the G7 and currently, I am writing this to my surprise (I feel I may say this as I own French citizenship and passport next o my Swiss one), a political stronghold in Europe. So if voters in France are worried about purchasing power more than anything else, they merit to be taken seriously, and I would not be surprised to see them as an early indicator for other members of the European Community.

Purchasing Power in Private Households

It would not surprise me a bit to see the French population as a proxy for populations across G7 or, even better, G20 member states. People all over the globe seem worried about the purchasing power of their income and wealth.

What Is your opinion, Ladies and Gentlemen?

Do you see the loss of purchasing power becoming a serious problem over the years to come and if, how would you protect yourself against it?

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, peace!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG – we love managing assets

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li