Market news | 25 January, 2020

The value of assets and the important role of professional investors

Alberto Villasán Investment and Markets Director

The low structural value of assets …

Almost coinciding with the release of this report, our renowned fixed income analyst, Joaquín González Loma, published an article on the value of both financial and non-financial assets that it is worth diving into based on its scope and relevance.

The article explains on a mathematical basis how the main assets offer far less value over the next 10 years in terms of anticipated yield than was the case over the last decade.

One aspect to bear in mind is that prices have climbed for all assets in recent years, currently offering investors long-term yields coherent with the near-zero rates seen at present.

… shapes our investment approach…

Asset yields are critical when designing the most suitable medium-term investment strategy.

When asset values are strong, and therefore anticipated yields are high, the best investment approach is to buy diversified assets and hold them in portfolios with the idea that one way or another, sooner or later, their value will flourish and profits will follow.

When asset values are low, and therefore anticipated yields are depressed, active management is the best investment approach, with a near-term focus and ensuring that assets are not held in portfolios for extended periods of time.

… underscoring the important role of professional investors and active management.

In the former case, when asset values are high, financial advisors and professional investors offer less value, given that the best strategy is to buy and hold investments until their intrinsic value becomes apparent.

In the latter scenario of assets offering low anticipated yields, as seen in the current climate, the services of financial advisors and professional investors are critical, with active management required to ensure the strongest yields from assets.

Which is why we recommend that all of our clients consult with their financial advisor at BBVA Switzerland to include their assets in our discretionary active management services, which have been so rewarding for our clients over the last eight years.