Lake Lucerne Switzerland

Founded in Geneva in 1805, Pictet is today one of Switzerland’s largest private banks, with assets under management and custody totalling USD 359 billion (CHF 336 billion / EUR 277 billion) at the end of December 2011.

In a paper by the Chief strategist, titled Europe’s ugly divergence vs. the US great deleveraging, they discuss at length the macro picture in Europe, China and the US. NOTE: these are the views of Pictet Wealth Management, which do necessarily represent those of Pictet Asset Management.

There is a lot of research especially on Europe, where they note that the outcome is far from certain.

The conclusions on investment strategy are detailed below:

In an environment that is characterized by the Great Divergence, we do not modify our strategic asset allocation, which hinges on defensive assets: investment grade corporate bonds, defensive equities, gold, and defensive hedge funds. We remain globally underweight in equities.

In the wake of renewed tensions on the European debt crisis, the performance dispersion among equity indices is significant. The S&P 500 and the Stoxx 600 respectively declined by 3% and 7% since mid-March. The IBEX 35 has slumped 25% since the beginning of February. Meanwhile, the DAX index is up 11.5% since the beginning of the year, resisting better than other European markets.

In light of recent developments, we have decided to:

Cut the entire allocation to the Chinese equity market and allocate the proceeds in favour of German blue chips of the DAX, which benefit from an asymmetric return profile in a still deteriorated European environment. The Dax index is much more defensive thanks to:

Macro players

Increasing Chinese exposure of German-listed companies

Asymmetric returns, providing a defensive profile to the Dax index

Cut the entire allocation to U.S. Treasuries. With a yield of 1.92%, the expected return of US government bonds is now limited.

Allocate the proceeds to domestic cash in the reference currency.