“The balance between positive and negative factors has shifted. This influences our decisions regarding the appropriate distribution of risk. On the positive side, we see more appealing valuations of both equities and fixed-income investments, although it remains important to be selective. In addition, problematic inflationary impulses and their negative effects look set to culminate soon. On the negative side, we are primarily seeing weak economic signals that cannot elicit traditional support from central banks, since they are fully occupied with countering high inflation. We thus consider it appropriate to maintain a neutral level of risk,” says Fredrik Öberg, Chief Investment Officer at SEB’s Private Wealth Management & Family Office division.
In our global equity portfolio, we are continuing to prioritise high-quality growth companies, since headwinds from rising interest rates should fade. We have added a partial currency hedge against the US dollar, which is actually much like increasing the proportion of Swedish equities at the expense of global ones.
Within Swedish equities, we are maintaining an overweight in large-cap companies with lower valuations, which are mainly found among industrials and financials. We are complementing this with small and medium-sized companies that have more of a growth profile.
Within fixed-income investments, we have recently extended our average duration and have approached our benchmark index, even though we expect the interest rate hiking phase to slow down.
As per usual, our alternative investments are independent, with little connection to the performance of both equities and bonds. This is the part of our portfolio that has shown the most stability during 2022.
How we adjust our risk in the near future will probably depend on how quickly inflation and the economy slow down, and whether or not any structural weaknesses are exposed in the financial system. However, we believe it is too late to become distinctively defensive in our portfolios, as we expect the interest rate hiking phase to now slow down. Even though we foresee continued tough times in 2023, expected returns have at the same time risen, especially viewed in a slightly longer-term perspective.
The November 2022 issue of Investment Outlook also includes two theme articles:
- Energy storage – the power to lift solar and wind to the next level
- Automation – new technology and better solutions
Investment Outlook can be read in its entirety or as a two-page summary at www.seb.se/investmentoutlookreport, where a web video I also available.