Stefan Keitel is managing director and global chief investment officer at Credit Suisse. He recently sat down with Executive to discuss how to best cash in on today’s investment trends, as well as a Credit Suisse fund that is raising some eyebrows.
E What is the best way to take advantage of the upswing in emerging markets?
There are many ways to invest in emerging markets, which are definitely a long-term trend. It completely makes sense to go for emerging market equities. It completely makes sense to go for emerging market bonds. In both asset classes, we strongly recommend investment in local currencies.
Another way to invest in emerging markets that is quite interesting for some conservative United States or European investors is buying European or US firms which have a major stake of their business model dedicated to the emerging markets, let’s take Nestle for example. Nestle is a very conservative Swiss corporate and has one third of their business model dedicated to the emerging markets and that is also where one can invest indirectly into the emerging markets, so that’s the way we would like to go; catching the trend by buying a visible stake of the overall equity portfolio into the emerging markets.
E Is there a reason you have not included [emerging markets index] trackers in this recommendation?
That’s more on the selection side. When we talk about portfolios, on one side we have the asset allocation decision. When we then talk about how to implement the emerging markets, to fill this allocation with life, then of course we have to find the right way to go for that. And here, you can also do it in different ways. I think the mixture is key.
You can go for active managed funds to go for ‘selection alpha’ [when managers’ performance is above market performance]. From my personal point of view, from our point of view, this is a good strategy because the emerging markets are not efficient markets. They are not comparable to the big US markets or the big European markets. The active fund manager can definitely manage ‘alpha,’ nevertheless you can also go for trackers to minimize risk and to go for broad diversification. That means we strongly recommend both.
But, when you compare the emerging markets with traditional markets, then it’s crystal clear that the best strategy to go into the emerging markets is an actively managed fund.
E Do you feel that investors have lost trust in products coming from big names like Credit Suisse?
I would not say that it has something to do with the products from the big names. I think it is a mistrust of all types of structured products because the financial crisis clearly showed the disadvantages of structured products with regard to transparency and liquidity and sometimes understandability. I think these elements are now more or less a drag for the success of structured products.
E Have you dropped any products since 2008?
No. Of course there is a kind of shift in thinking; I think now there is a bigger challenge to be able to explain the rationale behind [the product] because a client now puts more requests on the table. This has influenced [the industry’s] strategy in selling structured products. For the advisory space, structured products definitely make sense and can add value.
It is [with non-standardized discretionary clients] where you have to differentiate an individual customized concept, [to make sure] that it makes sense, but [structured products are] not for the standardized discretionary management.
E Can you confirm that the “Emerging Markets Credit Opportunity” fund launched in August by Credit Suisse contains Israel’s Koor Industries, the Qatar Investment Authority (QIA) and Saudi Arabia’s Olayan Group?
This I cannot. I am responsible for the scenarios of the asset allocation and the concept and the philosophy as a CIO. And I think the fund managers and portfolio managers on the equity and fixed income sides have to deal with the different selection opportunities. This cannot be my job.
E If you are involved in strategy then this has to affect you, no?
Not really, no.
E Do you deal with individual clients?
In special cases, because we are explaining how to build up a strategy and how to run discretionary mandates and we do that for them. But in special cases, especially for the premium clients on the private client side or for the institutional clients, I as a CIO of course have to go to the table to be involved in the conversation. And that’s also a request of the clients. I think the big endowments and insurance companies, but also the ultra high net-worth clients, want to see the CIO. They want to hear from the CIO how they see the world and what is going on with the macroeconomics and the GDP and inflation/deflation story.
E Have you had personal contact with your largest shareholders in the last month?
Every month on a frequent basis.
E It seems logical then to say that you would have contact with QIA, Koor and the Olayan Group in the last month since the launch of this fund, which would be part of their portfolio…
No not in my specific case, no. We have also some other important people at the bank and I assume that they perhaps have been in contact.
E Are you advising to buy gold right now?
I would not advise to buy right now but gold is my personal favorite topic since 2003. I think it is an ongoing story. I would buy gold but I would not give that misleading statement to buy it right now. I think my main call was to have bought it 10 years ago and use every consolidation phase and correction phase to add a portion to the gold market. And also on the global basis, I used the first opportunity to go to a 3 to 5 percent gold investment for all of our portfolios — for the discretionary space and also it was a recommendation for the advisory space. And I am still of the opinion that the gold trend is anything but over because I think there is mistrust in the world’s leading currencies right now, not only [regarding] the euro but [also] the British pound and others. And this is a main driving force for the gold price.
Investors definitely mistrust the stability of paper money and that is the reason that all of these big clients have now started to invest step by step into the gold market; to them, gold is a kind of diversification and a kind of insurance against all negative eventualities and that is the driving force for gold.
We are pretty convinced that it is extremely difficult to come back to a scenario where these big investors have trust in paper money because the imbalances are not getting smaller, they are rather getting bigger because [Western governments] are going to stimulate [their economies] further.
When I look at the portfolios of the big clients, many of them are talking about gold, but in their portfolios, they have allocations of 0.5 percent, 1 percent or 2 percent. There’s much room for further gold interest. Gold is not a safe haven — gold is a very volatile asset class. But I think it is extremely necessary for the overall portfolio. And when gold shows volatility, that’s another buying opportunity for the long-term because it is a long-term strategic story and not an asset class you should invest in tactically.
