Investment strategies for volatile markets

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GLOBAL INVESTOR 3.07 Special — 37 Read more about Credit Suisse’s comprehensive wealth management solutions and its core-satellite approach toward helping clients achieve their financial objectives in our Wealth Management Guide. To receive a copy of the Credit Suisse Wealth Management Guide, please contact your Relationship Manager. page X/X Wealth Management Guide Investing systematically Modern wealth management: seeking structure, clarity and consistency. Our expertise at the service of your needs.
GLOBAL INVESTOR 3.07 Special — 38 An answer to increasing volatility Total return strategies suit all investor types and are very interesting at present, as we expect volatility in financial markets to increase. Portfolio diversification, a flexible investment strategy and stringent risk management aim at achieving an asymmetric return distribution, which means limiting potential losses, without forsaking performance opportunities as markets advance. Daniel Hausammann, Head of Multi Asset Class Solutions (MACS) Total Return Family In financial theory, the term “total return” refers to the overall return generated by an investment or a portfolio. Total return consists of recurring investment income (interest earned, dividends and any other payouts) over a certain period of time plus whatever capital gains are made during that time. A total return can be calculated for every kind of investment, so that every financial investment could theoretically be considered a total return product. It comes as no surprise, then, that Google produces 2.2 million hits for the words “total return.” Going through the results of the search, however, one can easily tell that “total return” is used most often in connection with investment strategies that are designed to function largely independently of general market movements. In the short term, capital preservation is the overriding objective; in the medium term, an appropriate excess return over the risk-free rate is targeted. Furthermore, these targets should be reached with the highest possible degree of probability. Three main aspects of total return strategy What sounds simple in theory is a major challenge in practice for portfolio managers. In order to achieve the given ambitious goals, three strategic pillars were defined in the Multi Asset Class Solu- tions (MACS) of the Asset Management Division. All of the total return solutions at Credit Suisse are based upon these three strategic pillars. 1. As many sources of return as possible. Having a global investment universe and putting different asset classes and investment instruments to use improves the distribution of risk (diversification) and creates investment opportunities no matter what the current market environment is like. Therefore, the total return solutions that are developed and offered in MACS are allowed to invest in a global spectrum of traditional investment assets (equities, bonds) and alternative investments (hedge funds, private equity, real estate, commodities and insurancelinked securities). Investments are made either directly or through collective investment vehicles (actively and passively managed investment funds) or through derivative instruments. 2. A highly flexible investment strategy. Empirical studies have shown that 80% to 90% of the total return of a portfolio is determined by judicious asset allocation, and that only 10% to
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