Investment Ideas

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USD INTEREST RATES: PLENTY OF MOVEMENT AT THE LONG END (Leonteq Securities AG, 01.12.2023)
Fed takes a break Has the cycle of interest rate hikes in the USA come to an end? This is the subject of intense debate among investors, analysts and economists as we approach the home straight of the 2023 stock market year. To combat high inflation, the US central bank has jacked up its target rate from almost zero in early 2022 to 5.25% to 5.50% now. At the last two meetings in September and the start of November, though, the Open Market Committee stayed its hand.

Fed takes a break

Has the cycle of interest rate hikes in the USA come to an end? This is the subject of intense debate among investors, analysts and economists as we approach the home straight of the 2023 stock market year. To combat high inflation, the US central bank has jacked up its target rate from almost zero in early 2022 to 5.25% to 5.50% now. At the last two meetings in September and the start of November, though, the Open Market Committee stayed its hand. Nevertheless, Fed chairman Jerome Powell does not want to set any end date for the squeeze on monetary policy, let alone talk about rate cuts. Indeed, he continues to direct his focus on forcing inflation down to the stated 2% target. “We are not confident that we have achieved such a stance,” Powell said following the latest decision on interest rates. At the same time, he pointed out that the US economy had an astonishingly strong constitution.

 

Sharp rise in yields

The markets may be doing at least some of the Fed's work for it. “The financing conditions have tightened considerably over the last few months,” Powell noted. This development had been driven in the main by longer-dated bonds. In fact, there has been a lot of movement at the far end of the yield curve recently, with the yield on the 30-year US Treasury climbing above the 5% mark in mid-October (see graph), a level last seen in the summer of 2007. The interest rate for the long-term bond has risen by around 80 basis points since the end of 2022, while that for the 20-year version has jumped higher still. Pimco does not see the latest movement as having been driven primarily by concerns over inflation or other rate hikes by the Fed. Rather, the fixed-income manager cites the diminishing fears of recession as the central cause.

 

Fixed-income giant with a clear opinion

“Steepening of the yield curve creates a compelling opportunity for investors in money markets to consider adding longer-duration assets, in our view,” write the Pimco experts in a blog post. At the moment starting yields were high relative both to history and to other asset classes on a risk-adjusted basis. This could create a “yield cushion” amid a still highly uncertain outlook. “In addition, bonds have the potential to earn capital gains and diversify portfolios,” the authors reckon. Pimco otherwise shares the Fed's assessment that the financial conditions have already tightened. This would make new debt more expensive and thereby possibly slow down economic activity, which could in turn lead to a loosening of monetary policy.

 

A time for silence

We are not quite that far yet. What is certain, though, is that Jerome Powell will soon fall silent. On 2 December the “blackout period” ahead of the Open Market Committee meeting starting ten days later will begin. During this time high-ranking representatives of the US central bank refrain from passing comment on the economy, monetary policy and interest rates. The markets are in any case pretty unanimous that there will be no increases in rates either on 13 December or in the following months. According to the CME FedWatchTool, it is even possible that there will be a first cut in the target rate in June 2024 (see graph). In that regard the tool, which is based on the conditions on the futures markets, chimes with Pimco’s view. Should interest rates actually start trending downwards next year, now may well be the right time to build up a position in longer-term US government bonds, which have been badly hit recently.

 

Yield on 30-year US Treasuries (in %)

Source: FRED Economic Data (St. Louis Fed); as at 13.11.2023

Past performance is not a reliable indicator of future performance.

 

 

Expectations for US interest rates (Fed target rate probabilities, each in %)

Source: CME FedWatch Tool (CME Group); as at: 31.11.2023
Past performance is not a reliable indicator of future performance.

 

 

 

New fixed-income investment: Outperformance certificate on the iShares $ Treasury Bond 20+yr ETF

 

US government bonds under pressure

In terms of prices, there was not much to be gained in the fixed-income asset class in 2023, with quotations softening across a broad front. Given monetary policy, this weakness is generally unsurprising: the majority of central banks have been raising interest rates vigorously to ward off the spectre of inflation. Furthermore, bond markets have recently also been generating some momentum of their own. This is particularly true for the USA, because it is known that the Fed suspended the series of interest rate hikes in September. Despite the pause, however, yields continued to rise while US government bonds declined sharply. That also and especially applied for the longer terms. This thesis can be illustrated by the ICE U.S. Treasury 20+ Year Bond Index: from 20 September, the date of the Fed meeting, this benchmark lost more than a tenth of its value within the space of a month.

 

Possible turnaround in interest rates

It is possible that even the US monetary authorities were not entirely comfortable with the rise in yields associated with this price trend. At any rate, a rumour that the Fed could intervene in the market for US government bonds has since done the rounds. What is certain is that prices have recovered somewhat, with the ICE U.S. Treasury 20+ Year Bond Index climbing by up to 8% from its recent low. One reason for the rebound could be the strengthening consensus on a possible turnaround in interest rates next year. Futures markets are now pricing in a reduction of 75 basis points in the Fed target rate for 2024. This expectation naturally depends first and foremost on the further course of inflation and the general economic climate. Another factor is the national budget: the parties in Washington D.C. have until 17 November to amend the “stopgap bill”. If the House of Representatives and the Senate are unable to agree on interim financing, a shutdown looms. Government coming to a halt, and the unforeseeable consequences for the world's largest economy, could in turn undermine the scenario of falling interest rates.

 

Bond ETF as an underlying

Leonteq has launched an interesting new issue for investors who are thinking about taking a position in US government bonds in light of this background: the outperformance certificate on the iShares $ Treasury Bond 20+yr UCITS ETF. The underlying of this structured product is an exchange traded fund (ETF) on the bond index already mentioned. This currently contains 40 US government bonds with a duration of 20 years or more. A good half of the fund portfolio is allocated to US Treasuries due in 2050 or later. iShares launched this ETF at the start of 2015. The assets under management now amount to USDbn 7.42. The new outperformance certificate offers the prospect of participating disproportionately in rising quotations for the underlying.

 

Opportunity for outperformance

The certificate has a two-year term. Should the countermovement of the longer-dated Treasuries prove to be sustainable, the structured product would share in this with an outperformance rate of 140%. Assuming that the underlying appreciates by a fifth over a 24-month period, the certificate would repay 128% of the denomination. Please note that the participation does not kick in fully until the maturity date. Other factors will have an effect on the pricing during the term, including and especially how interest rates in the USA develop. There is no partial or capital protection, so the structured product would participate fully in any downward movement of the ETF. To conclude, the new outperformance certificate offers a good opportunity to take a punt on the interest rate turnaround in the USA and rising prices for long-dated Treasuries with diversification and leverage.

 

 

 

Legal Disclaimer

 

This document constitutes Advertising within the meaning of article 68 of the FinSA.

 

This publication serves only for information purposes and is not research; it constitutes neither a recommendation for the purchase of financial instruments nor an offer or an invitation for an offer. No responsibility is taken for the correctness of this information. Investors bear the full credit risk of the issuer / [guarantor] for products which are not issued as COSI® products. Before investing in derivative instruments, investors are highly recommended to ask their financial advisor for advice specifically focused on the investor´s financial situation; the information contained in this document does not substitute such advice.

 

This publication does not constitute a simplified prospectus pursuant to art. 5 CISA, or a listing prospectus pursuant to art. 652a or 1156 of the Swiss Code of Obligations. The relevant product documentation can be obtained directly at Leonteq Securities AG via telephone +41 (0)58 800 1111, fax +41 (0)58 800 1010, or via email termsheet@leonteq.com.

 

Selling restrictions apply for the EEA, Hong Kong, Singapore,the USA, US persons, and the United Kingdom (the issuance is subject to Swiss law).

 

The Underlying’s performance in the past does not constitute a guarantee for their future performance. The financial products' value is subject to market fluctuation, which can lead to a partial or total loss of the invested capital. The purchase of the financial products triggers costs and fees. Leonteq Securities AG and/or another related company may operate as market maker for the financial products, may trade as principal, and may conclude hedging transactions. Such activity may influence the market price, the price movement, or the liquidity of the financial products.

 

Insofar as this publication contains information relating to a Packaged Retail and Insurance-based Investment Product (PRIIP), a Key Information Document in accordance with Regulation (EU) No 1286/2014 (PRIIPs Regulation) is available at https://www.priipkidportal.com/

 

Any - including only partial - reproduction of any article or picture is solely permitted based on an authorization from Leonteq Securities AG. No responsibility is assumed in case of unsolicited delivery.

 

© Leonteq Securities AG 2023. All rights reserved.

 

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Do you know why the S&P 500 is one of the most successful equity indexes? (Bank Julius Baer & Co. Ltd., 06.11.2023)
The S&P 500 index includes some of the world’s leading companies that are not only shapers and drivers of major structural trends, but also generators of strong free cash flows. As a result, the S&P 500 is not only the best known equity index in the world, it is also consistently in pole position when it comes to performance.

The S&P 500 index includes some of the world’s leading companies that are not only shapers and drivers of major structural trends, but also generators of strong free cash flows. As a result, the S&P 500 is not only the best known equity index in the world, it is also consistently in pole position when it comes to performance.

 

However, in light of the geopolitical uncertainties, a capital-protected solution can be a good way for investors to maintain or even increase their exposure to the performance of the index without being exposed to the downside risk at maturity.

 

Julius Baer's Research team is very constructive on the S&P 500: diminishing monetary policy headwinds as the US Federal Reserve winds down its rate hikes; a gradual decline in inflation that will remove a large layer of uncertainty from the market; the start of an earnings recovery for US large-caps, which borrowed at low fixed rates when interest rates were low; gains on cash from attractive short-term interest rates until it is needed for future growth. There are therefore many reasons to maintain or even increase exposure to the performance of the S&P 500 in the context of portfolio objectives.

 

For most investors, exposure to the S&P 500 is a core, longterm investment. With its three-year maturity, this product fits well into this longer-term asset allocation perspective. In addition, the longer maturity of this product makes it possible to combine capital protection with high upside participation: a maximum return of just under 50%. If the S&P 500 rises by 50% or more, the performance of the exchange-traded fund will be replaced by a 25% rebate paid at maturity (in that case, however, other equity investments are likely to have risen strongly). In short, this product offers attractive exposure to the world’s leading companies as well as capital protection, which takes into account the current global uncertainties.

 

Source: Julius Baer Equity Strategy Research, Julius Baer Structured Products Institutional Sales; CIO Monthly: Money having a price again is healthy, 17 October 2023

 

For further information about this product click here

 

 

 

IMPRINT

This content constitutes marketing material and is not the result of independent financial/investment research. It has been produced by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA.

 

This content is intended for information purposes only and does not constitute advice, an offer or an invitation by, or on behalf of, Julius Baer to buy or sell any securities, securities-based derivatives or other products or to participate in any particular trading strategy in any jurisdiction.

 

Julius Baer does not accept liability for any loss arising from the use of this document.

 

This content may include figures relating to simulated past performance. Past performance, simulations and performance forecasts are not reliable indicators of future results.

 

For further details about risks and suitability, as well as important legal information, please consult the following link: IMPORTANT LEGAL INFORMATION

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UBS: Tension before the earnings report (Leonteq Securities AG, 02.11.2023)
To date, the reporting season in the SMI has been rather slow. Roche and Nestlé disappointed the markets almost simultaneously in mid-October. A few days later, Novartis exceeded expectations and raised its earnings forecast for 2023. Nevertheless, the reaction of investors was rather subdued. Missed sales expectations for two cancer drugs were cited as a downer of the interim report. After the SMI heavyweight trio, the company with the fourth-largest share in the leading index will speak out next week.

To date, the reporting season in the SMI has been rather slow. Roche and Nestlé disappointed the markets almost simultaneously in mid-October. A few days later, Novartis exceeded expectations and raised its earnings forecast for 2023. Nevertheless, the reaction of investors was rather subdued. Missed sales expectations for two cancer drugs were cited as a downer of the interim report. After the SMI heavyweight trio, the company with the fourth-largest share in the leading index will speak out next week. On November 7, UBS will publish its results for the third quarter of 2023, when the strong share price performance of the big bank in recent months will come under scrutiny. With a plus of 24%, the UBS share leads the 2023 performance ranking for the SMI to date.

 

Substantial book profit

With this development, the domestic institution also outperforms the European sector by a long way. The outperformance is directly related to the banking quake that hit Switzerland at the beginning of the year. Credit Suisse was pretty much faltered by it. Supported by the government and the SNB, UBS "had" to take over its stumbling competitor. Just how favorably it got its way became clear in the balance sheet for the second quarter of 2023. UBS posted a record operating profit (pre-tax profit level) of USD 29.239 billion, of which USD 28.925 billion was attributable to a book gain or "badwill" from the CS acquisition. During the presentation of the figures, CEO Sergio Ermotti, who has returned to the top of the Group, described the bank merger as one of the largest and most complex in history. "We are wasting no time in delivering value for all stakeholders," he said in late August.

 

Turnaround for the better

Reducing costs, leveraging economies of scale and regaining trust - those are the top banker's priorities. Before its near-collapse, clients had been withdrawing their capital from Credit Suisse on a grand scale. In the fourth quarter of 2022 alone, Wealth Management recorded outflows of close to USD 100 billion. Since then, the situation has gradually improved. In the first two months of the third quarter of 2023, the CS division was able to stop the outflow of funds (see chart). As far as the operating result of the entire Group is concerned, Sergio Ermotti is aiming for roughly break-even for the past quarter. In the entire second half of 2023, pre-tax profit is expected to be positive. In addition to the latest results and the outlook, investors and analysts are likely to take a close look at the status of the planned integration of Credit Suisse during the presentation of the new month's results.

 

Interesting conditions

UBS shares have been somewhat out of step with the broader market in recent weeks - down more than 6% on a one-month basis. Even if the interim report and accompanying commentary fail to propel the large cap anew, the softcallable barrier reverse convertible (BRC) offers an attractive yield. Quarterly, this CHF denominated new issue counts a coupon of 9% p.a.. The barrier is a low 59% of the initial level. As long as UBS does not reach or fall below this level during the term, the issuer will repay the nominal in full. Otherwise, the investment would be exposed to the price risk of the underlying. Please note the soft callable feature. It allows an early termination and redemption of the BRC. Leonteq Securities can make use of this option for the first time after six months and thereafter quarterly.

 

UBS/ Credit Suisse: Inflows and outflows in wealth management (net new assets/investments)

* up to and including 28.08.2023; Source: UBS, as of 31.08.2023

 

Historical data is not a reliable indicator of future performance.

 

 

UBS: Chart (in CHF)

Source: Reuters, as of 30.10.2023

 

Historical data is not a reliable indicator of future performance.

 

 

 

Legal Disclaimer

 

This document constitutes Advertising within the meaning of article 68 of the FinSA.

 

This publication serves only for information purposes and is not research; it constitutes neither a recommendation for the purchase of financial instruments nor an offer or an invitation for an offer. No responsibility is taken for the correctness of this information. Investors bear the full credit risk of the issuer / [guarantor] for products which are not issued as COSI® products. Before investing in derivative instruments, investors are highly recommended to ask their financial advisor for advice specifically focused on the investor´s financial situation; the information contained in this document does not substitute such advice.

 

This publication does not constitute a simplified prospectus pursuant to art. 5 CISA, or a listing prospectus pursuant to art. 652a or 1156 of the Swiss Code of Obligations. The relevant product documentation can be obtained directly at Leonteq Securities AG via telephone +41 (0)58 800 1111, fax +41 (0)58 800 1010, or via email termsheet@leonteq.com.

 

Selling restrictions apply for the EEA, Hong Kong, Singapore,the USA, US persons, and the United Kingdom (the issuance is subject to Swiss law).

 

The Underlying’s performance in the past does not constitute a guarantee for their future performance. The financial products' value is subject to market fluctuation, which can lead to a partial or total loss of the invested capital. The purchase of the financial products triggers costs and fees. Leonteq Securities AG and/or another related company may operate as market maker for the financial products, may trade as principal, and may conclude hedging transactions. Such activity may influence the market price, the price movement, or the liquidity of the financial products.

 

Insofar as this publication contains information relating to a Packaged Retail and Insurance-based Investment Product (PRIIP), a Key Information Document in accordance with Regulation (EU) No 1286/2014 (PRIIPs Regulation) is available at https://www.priipkidportal.com/

 

Any - including only partial - reproduction of any article or picture is solely permitted based on an authorization from Leonteq Securities AG. No responsibility is assumed in case of unsolicited delivery.

 

© Leonteq Securities AG 2023. All rights reserved.

 

 

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Economic recovery offers investment opportunities  (Leonteq Securities AG, 04.09.2023)
Return to growth Rising interest rates and galloping inflation have thoroughly unsettled consumers over the last year. This threatening combination also sometimes caused the economy to slow down. In Switzerland the growth in gross domestic product (GDP) halved to 2.1% in 2022, while in the USA the rate of expansion fell to the Swiss level after reaching almost 6% the previous year.

Return to growth 

Rising interest rates and galloping inflation have thoroughly unsettled consumers over the last year. This threatening combination also sometimes caused the economy to slow down. In Switzerland the growth in gross domestic product (GDP) halved to 2.1% in 2022, while in the USA the rate of expansion fell to the Swiss level after reaching almost 6% the previous year. Following a weak first six months, however, the graph started to head up again, and the upturn is gaining strength this year too. Although the overseas economy grew by only 1.1% at the start of 2023, the second quarter saw an annualised growth rate of 2.4%, exceeding the average expectations of economists. The domestic economy has put in a strong start to the year, causing the Swiss State Secretariat for Economic Affairs (SECO) to confirm its growth target of 1.1% for 2023 and forecast an acceleration to 1.5% in 2024.

 

Inflation on the retreat

The positive growth figures go hand in hand with an all-clear on the inflation front. The rate of increase in the price of goods and services in the US fell in June to its lowest level in more than two years. Consumer prices climbed by only 3.0% compared with the previous year, the smallest rise since March 2021. In Switzerland prices are actually falling again, the national consumer price index slipping 0.1% in July compared with the previous month. The Federal Office for Statistics calculated year-on-year inflation at 1.6%. In the eurozone, too, the graph is pointing downwards: last month inflation decreased to 5.3%, having reached 10.6% at its peak in October 2022. Furthermore, according to provisional estimates the economy in the currency zone as a whole also grew at a faster than expected 0.3% in the second quarter.

 

Tourism as an economic factor

Although Germany, Europe's largest economy, is still showing signs of weakness, southern European states especially are returning to growth. One of the reasons for this is tourism. According to UNWTO data, for instance, southern Europe rebounded to its pre-pandemic level at the start of the year. It is not only the old continent that is seeing greater bookings, though: the itch to travel is increasing across the world. Last year a little over 960 million tourists travelled abroad, which means that two-thirds of the pre-coronavirus figure has already been regained. Overall, international arrivals in the first quarter of 2023 came to 80% of the level before the outbreak of the virus. At 235 million, the number of tourists was more than twice as high as in the same period of 2022. “The start of the year has shown again tourism's unique ability to bounce back,” stated UNWTO Secretary-General Zurab Pololikashvili, adding: “In many places, we are close to or even above pre-pandemic levels of arrivals.” Receipts from international tourism grew back to hit the USDtn 1 mark in 2022, with Europe accounting for the largest share at nearly USDbn 550.

 

Bullish share prices

Many sectors are profiting from the recovery in tourism, including airlines, aircraft manufacturers, hotels and even the entertainment and cruise industry. Share prices in the last of these sectors have metaphorically gone through the roof this year. Cruise ship giants Royal Caribbean and Carnival, for instance, have posted three-figure percentage gains since the turn of the year. Shares in aircraft manufacturers Airbus and Boeing, though, have also appreciated markedly so far in 2023 thanks to flourishing business. In the first half of the year, for example, Boeing took in orders for a good 1,000 aircraft, almost four times as many as in the same period the previous year. The two rivals also managed to beat expectations with their sales and earnings figures for the second quarter. Another positive development is that Boeing CEO Dave Calhoun is looking to ramp up production of its bestselling 737 MAX to 38 machines a month, 7 more than previously, in light of the global recovery in aviation traffic.

Source: Statista

 

 

Economic winners in one package: Tracker on the Swissquote Recovery Index

 

Broad-based recovery

A wide range of companies are profiting from the economic revival. As already revealed, the tourism sector is well out in front. Not only have the end of the coronavirus pandemic and fuller wallets thanks to pay increases given wings to the travel bug, but there is also a little more loose change for a hot drink or burger every now and then, which the renowned coffee shop chain Starbucks and KFC owner Yum!Brands are happy to provide. The after-work beer is also returning to popularity with rising incomes and greater confidence in the economy, something which is causing the tills to ring again for Wetherspoon, the British pub chain that also owns some hotels. On the subject of hotels, leading global names such as Hilton and Marriott are enjoying higher reservations in line with the recovery. Both companies managed to exceed Wall Street expectations for sales and profit estimates in the second quarter and also raised their outlooks for the year as a whole. The same was true of Booking Holding, the operator of online travel portals.

 

Diversified index

The economic rebound is also causing shares in the corresponding companies to soar in value. The share price of Booking Holdings climbed by more than half in 2023 and has just reached an all-time high. Hotel chain Marriott achieved a remarkable increase of slightly more than one third, likewise setting a new record recently. Stock of budget airline Ryanair similarly grew by a little over 30%. Even the share price of Hungarian Wizz Air rose by a quarter in the wake of operational successes. Not only did the airline post a new passenger record last year, but the group also flew back into profit. It would truly be a mammoth task for investors to keep an eye on all the shares that gain from an improvement in the economy. That is something investors do not even have to consider, though, thanks to the solution by the name of the Swissquote Recovery Index. The actively managed barometer is currently made up of 32 components, including all the companies mentioned in the text so far.

 

Promising sectors

On a sector view, the tone of the Swissquote Recovery Index is set by the aviation industry. This sector currently contains eleven companies of the barometer which together add up to one third of the index weighting. If cruise providers, hotels and booking platforms are added, the tourism sector accounts for almost half the benchmark. The absolute heavyweight, however, is Madison Square Garden Sports from the entertainment industry. This is a professional sports company which owns teams such as the New York Knicks in the National Basketball Association (NBA) and the Rangers of the National Hockey League (NHL). The strategy barometer is also broadly positioned in the entertainment sector. The index includes, for instance, leisure and theme park operator SeaWorld Parks & Entertainment, film exhibitor Cinemark Holdings and Dave & Buster’s, an owner of video game arcades and bowling alleys. Strayer Education is the stock with the highest weighting at 6.2%. The company specialises in educational services and also owns its own private university.

 

Outperformers for the portfolio

Leonteq’s tracker on the diversified Swissquote Recovery Index offers investors convenient and low-cost access to a large number of international companies that profit from an economic upturn. The active approach ensures that the composition can always be adjusted to the latest developments on the market. To that end the index is reviewed quarterly by the experts and adjusted where necessary. The costs incurred for this come to a moderate 0.85% p.a. So far the strategy has paid off: in the current year the certificate on the Swissquote Recovery Index has climbed more than 11%, while the SMI has posted a rise of only around 3%. 

 

Source: Swissquote, as at: 07.08.2023

 

 

Legal Disclaimer

 

This document constitutes Advertising within the meaning of article 68 of the FinSA.

 

This publication serves only for information purposes and is not research; it constitutes neither a recommendation for the purchase of financial instruments nor an offer or an invitation for an offer. No responsibility is taken for the correctness of this information. Investors bear the full credit risk of the issuer / [guarantor] for products which are not issued as COSI® products. Before investing in derivative instruments, investors are highly recommended to ask their financial advisor for advice specifically focused on the investor´s financial situation; the information contained in this document does not substitute such advice.

 

This publication does not constitute a simplified prospectus pursuant to art. 5 CISA, or a listing prospectus pursuant to art. 652a or 1156 of the Swiss Code of Obligations. The relevant product documentation can be obtained directly at Leonteq Securities AG via telephone +41 (0)58 800 1111, fax +41 (0)58 800 1010, or via email termsheet@leonteq.com.

 

Selling restrictions apply for the EEA, Hong Kong, Singapore,the USA, US persons, and the United Kingdom (the issuance is subject to Swiss law).

 

The Underlying’s performance in the past does not constitute a guarantee for their future performance. The financial products' value is subject to market fluctuation, which can lead to a partial or total loss of the invested capital. The purchase of the financial products triggers costs and fees. Leonteq Securities AG and/or another related company may operate as market maker for the financial products, may trade as principal, and may conclude hedging transactions. Such activity may influence the market price, the price movement, or the liquidity of the financial products.

 

Insofar as this publication contains information relating to a Packaged Retail and Insurance-based Investment Product (PRIIP), a Key Information Document in accordance with Regulation (EU) No 1286/2014 (PRIIPs Regulation) is available at https://www.priipkidportal.com/

 

Any - including only partial - reproduction of any article or picture is solely permitted based on an authorization from Leonteq Securities AG. No responsibility is assumed in case of unsolicited delivery.

 

© Leonteq Securities AG 2023. All rights reserved.

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Switzerland is a gem when the going gets tough (Bank Julius Baer & Co. Ltd., 04.09.2023)
Switzerland boasts not only beautiful landscapes but also an attractive stock market. There are many reasons to love Swiss equities: they are among the most defensive, they offer high balance sheet quality, and they are fundamentally less susceptible to economic cycles thanks to their market-leading profit margins and superior pricing power.

Switzerland boasts not only beautiful landscapes but also an attractive stock market. There are many reasons to love Swiss equities: they are among the most defensive, they offer high balance sheet quality, and they are fundamentally less susceptible to economic cycles thanks to their market-leading profit margins and superior pricing power.

 

The recent earnings season also proved the strength of Swiss companies: around two-thirds of company reports surprised on the upside, and earnings growth is expected to be 8% this year. Finally, Swiss equities are currently still relatively attractively valued, trading below their ten-year average. So it is no wonder that investors turn to them in times of uncertainty.

 

Investors might also turn to capital protection products when the going gets tough, as they allow investors to participate in the performance of the underlying while protecting some or all of the capital at maturity.

 

With better terms now available on capital-protected solutions following the rise in interest rates, Julius Baer is launching a new USD product on the Swiss Market Index (SMI) with 100% capital protection at maturity. It offers upside participation, with a maximum return of just under 20%. If the SMI rises by 20% or more during the lifetime of the product, the performance of the underlying is replaced by a 10% coupon, paid at maturity.

For further information about this product, click here.

 

IMPRINT

This content constitutes marketing material and is not the result of independent financial/investment research. It has been produced by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA.

 

This content is intended for information purposes only and does not constitute advice, an offer or an invitation by, or on behalf of, Julius Baer to buy or sell any securities, securities-based derivatives or other products or to participate in any particular trading strategy in any jurisdiction.

 

Julius Baer does not accept liability for any loss arising from the use of this document.

 

This content may include figures relating to simulated past performance. Past performance, simulations and performance forecasts are not reliable indicators of future results.

 

For further details about risks and suitability, as well as important legal information, please consult the following link: IMPORTANT LEGAL INFORMATION

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Bitcoin – back at the centre of attention (Leonteq Securities AG, 14.07.2023)
Cryptocurrency exchanges in focus. Volatility is one of the central characteristics of Bitcoin. This was demonstrated once again in spring this year when sudden negative headlines around the world's largest cryptocurrency exchange, Binance, caused the digital asset to suffer a marked correction in the middle of an upward trend. The company had repeatedly suspended Bitcoin withdrawals due to an unexpectedly sharp increase in transaction costs, making users nervous. Back at the end of March, investors withdrew USDbn 1.6 within the space of a few hours due to a lawsuit filed against the exchange by the US derivatives regulator CFTC.

Cryptocurrency exchanges in focus

Volatility is one of the central characteristics of Bitcoin. This was demonstrated once again in spring this year when sudden negative headlines around the world's largest cryptocurrency exchange, Binance, caused the digital asset to suffer a marked correction in the middle of an upward trend. The company had repeatedly suspended Bitcoin withdrawals due to an unexpectedly sharp increase in transaction costs, making users nervous. Back at the end of March, investors withdrew USDbn 1.6 within the space of a few hours due to a lawsuit filed against the exchange by the US derivatives regulator CFTC. This did not damage the reputation of Bitcoin, however: indeed, the chaos at Binance actually brought the competition onto the scene. The brokerage Charles Schwab and asset managers Fidelity and Citadel, for instance, joined forces to launch the “EDX Markets” cryptocurrency exchange on 19 June with a view to offering investors a reliable alternative following the collapse of FTX and given the growing scepticism towards Binance.

 

Price rally thanks to Bitcoin ETF

Almost simultaneously with the launch of EDX Markets, speculation about the licensing of a listed Bitcoin ETF in the USA led to an upturn in the mood. The application was made by no less than the world's largest asset manager BlackRock. “This would have a signal effect for the whole world,” says analyst Timo Emden of Emden Research. BlackRock would like to cooperate on this with the Nasdaq and Coinbase. This gives Coinbase, which was recently targeted by the SEC, weighty backing. Ark Invest, Fidelity, VanEck and WisdomTree are among those also working with Coinbase in this sector. The new licence application triggered a rally in the oldest digital currency in the world, the cyber currency even crossing the USD 31,000 barrier to reach its highest level in a year.

 

Increasing confidence

Should trading in BTC spot ETFs abroad be allowed, this could bring a little calm back to the digital currency cosmos in general, with cryptos having recently been dominated by unfavourable reports. In February this year, for instance, the US financial authorities barred Binance from issuing new digital coins of the USD-linked Binance USD. A class action against Ripple, issuer of the cryptocurrency XRP, is also under way at the moment. This year, though, the bedrock Bitcoin managed to detach itself from these new “threats”. Confidence in this cyber currency appears to be strengthening little by little again. Since its interim low in mid-November 2022, when the price plunged below USD 16,000, the currency has more than doubled. Bitcoin has appreciated by somewhat more than 80% just since the turn of the year.

 

Tailwind from institutional investors

On the subject of confidence, this is also evident from the Bitcoin holdings of OTC desks, regarded as a proxy for institutional activity, which hit a 1-year high in June. “In our view, increased balances on OTC desks suggest that institutions and other large capital allocators are focused increasingly on Bitcoin,” wrote the experts of ARK Invest in a recent report. And since BlackRock applied for its spot Bitcoin ETF, the discount to the net asset value (NAV) of the Grayscale Bitcoin Trust (GBTC) has fallen from -40% to -30%. According to the investment company founded by star fund manager Cathie Wood in 2014, the narrowing discount suggests that the market could be pricing in the approval of a Bitcoin spot ETF – which increases the likelihood of the GBTC being converted into one. At the end of June, the crypto investment giant Grayscale filed an appeal against the SEC decision rejecting the conversion of the GBTC into a BTC spot ETF. What is more, nearly 70% of the 19.4 million bitcoins in circulation have not moved in at least one year or more, confirming a strengthening holder base. The quantity of Bitcoin held for a year or more has thus reached an all-time high in both relative and absolute terms.

 

Graph: Market capitalisation of the top 10 cryptocurrencies

Source: ARK Invest

 

 

Promising Bitcoin investment:

 

Actively managed strategy delivers outperformance

 

Return without the adrenalin rush

If it came about, the licensing of a BTC spot ETF would obviously be a huge accolade for Bitcoin and the like and bring crypto assets a step closer to the mass market. Whether the astronomical targets of up to USDmn 1 that Ark Invest CEO Cathie Wood, for instance, reckons will be reached by 2030 will actually be hit remains uncertain. Nevertheless, rising demand for Bitcoin could certainly have a positive impact on its price. With a sophisticated strategy, it might even be possible to surpass the performance of the crypto heavyweight. The Swissquote Bitcoin Active 2.0 Index developed by Swissquote Bank has left Bitcoin trailing in its wake since it was launched in July 2020. Having risen 247%, the cryptocurrency strategy outperformed the digital coin by 17 percentage points. That is far from all, however: at the heart of the strategy is the reduction in volatility. Anyone who has followed Bitcoin over the last few years will know how quickly price trends can turn and how high the fluctuations can be. Swissquote’s more conservative management ensures that the adrenalin rush for investors remains within limits. This is achieved by stocking up cash holdings in uncertain phases and downward trends. Ultimately, the aim is to achieve more consistent potential returns over the long term.

 

Elaborate concept at a favourable price

The clever concept is based on artificial intelligence – or machine learning, to be more precise. In this process data from a variety of sources are captured in order to form quality indicators. These are made of up the average of the changes, the actual volatility, the buy-side and sell-side pressure and a social index for the market mood. The algorithm compiles and interprets this wealth of data, identifies the development of future returns at an early stage and then structures the portfolio based on this comprehensive analysis. To limit volatility, Bitcoin accounts for at least 60% and not more than 100% of the holdings, while US dollars make up the remaining 40% to 0%. The corresponding tracker certificate (ISN CH0542378622) on the Swissquote Bitcoin Active 2.0 enables prospective investors to bring this promising strategy into their portfolio at low cost. Despite the elaborate process, the product comes with an annual fee of just 1.5%. The tracker also has an open-ended structure, allowing holders to choose their investment period to suit.

 

Active management in “mini” format

Alongside the Swissquote Bitcoin Active 2.0 Index, Leonteq also has a “smaller” version to offer: the Bitcoin Active 2.0 Mini certificate (ISIN CH0596607769). This likewise aims at mitigating volatility while at the same time profiting from the short upticks in the sector, which it does by boosting cash holdings in times of uncertainty and downturns so that more consistent earnings can be achieved in the long term. The only risks are in Bitcoin and cash: between 60% and 100% of the portfolio is invested in Bitcoin, depending on the market conditions and confidence, with the rest of the capital being held in Swiss francs. Although the product has been in negative territory since it was issued almost exactly two years ago, the loss is not as great as that suffered by the most valuable virtual currency in the world. While Bitcoin has dropped by a little more than a fifth, the Bitcoin Active 2.0 Mini certificate has shed only around 13% of its value. The product also has an unlimited term, and the fees for active management (1.00% p.a.), calculation of the index (0.35% p.a.) and rebalancing (0.15% p.a.) correspond to those of the maxi version.

 

Advantageous certificates

The trackers combine a number of advantages. For one thing, investors have the best protection against theft, a key consideration given that holders of Bitcoin often fall victim to cyber criminals. The certificates, though, offer protected and convenient access to the crypto asset because the security is held securely in the portfolio of your house bank as usual. Furthermore, the two Bitcoin indices brought into being by Swissquote are better protected against fluctuation, which will continue to be an important factor going forward. That is because current regulatory efforts could have a considerable impact on both the value of digital currencies and the operation of crypto exchanges.

 

 

Chartvergleich Swissquote Bitcoin Active 2.0 Index vs. Bitcoin

 

 

Chartvergleich Swissquote Bitcoin Active 2.0 Mini Index vs. Bitcoin

 

 

Legal Disclaimer

 

This document constitutes Advertising within the meaning of article 68 of the FinSA.

 

This publication serves only for information purposes and is not research; it constitutes neither a recommendation for the purchase of financial instruments nor an offer or an invitation for an offer. No responsibility is taken for the correctness of this information. Investors bear the full credit risk of the issuer / [guarantor] for products which are not issued as COSI® products. Before investing in derivative instruments, investors are highly recommended to ask their financial advisor for advice specifically focused on the investor´s financial situation; the information contained in this document does not substitute such advice.

 

This publication does not constitute a simplified prospectus pursuant to art. 5 CISA, or a listing prospectus pursuant to art. 652a or 1156 of the Swiss Code of Obligations. The relevant product documentation can be obtained directly at Leonteq Securities AG via telephone +41 (0)58 800 1111, fax +41 (0)58 800 1010, or via email termsheet@leonteq.com.

 

Selling restrictions apply for the EEA, Hong Kong, Singapore,the USA, US persons, and the United Kingdom (the issuance is subject to Swiss law).

 

The Underlying’s performance in the past does not constitute a guarantee for their future performance. The financial products' value is subject to market fluctuation, which can lead to a partial or total loss of the invested capital. The purchase of the financial products triggers costs and fees. Leonteq Securities AG and/or another related company may operate as market maker for the financial products, may trade as principal, and may conclude hedging transactions. Such activity may influence the market price, the price movement, or the liquidity of the financial products.

 

Insofar as this publication contains information relating to a Packaged Retail and Insurance-based Investment Product (PRIIP), a Key Information Document in accordance with Regulation (EU) No 1286/2014 (PRIIPs Regulation) is available at https://www.priipkidportal.com/

 

Any - including only partial - reproduction of any article or picture is solely permitted based on an authorization from Leonteq Securities AG. No responsibility is assumed in case of unsolicited delivery.

 

© Leonteq Securities AG 2023. All rights reserved.

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A defensive shield for portfolios as interest rates start to bite (Bank Julius Baer & Co. Ltd., 05.06.2023)
Credit conditions are tightening as a result of the rise in global interest rates. This should trigger a sharp growth slowdown in advanced economies, even as the consumer is holding up well for now.

Credit conditions are tightening as a result of the rise in global interest rates. This should trigger a sharp growth slowdown in advanced economies, even as the consumer is holding up well for now.

 

Investors looking to add a defensive shield to their portfolio can consider this 1Y USD JB Tracker Certificate on the Attractive Defensives Basket.

 

This product provides exposure to seven stocks that our Equity Research analysts favour for when growth slows and which are on their recommendation list due to their attractive fundamentals:

 

•           American Tower is a vital element in the US infrastructure communication network with high entry barriers, long-term earnings visibility, and a low dependence on growth.

 

•           AstraZeneca is a key player in healthcare, our preferred defensive sector; the company offers sector-leading growth with multiple pipeline read-outs and product sales acceleration expected.

 

•           Ahold Delhaize is among the most locally dominant food retailers, with a strong private label offering catering to cash-strapped consumers.

 

•           L'Oréal’s business is beauty, which never seems to go out of fashion; the company has dominant brands and is growing faster than its market.

 

•           McDonald’s is the brand name in fast food, and offers defensive growth due to its scale and investments in technology.

 

•           Pernod Ricard is in the beverage business, which is defensive in nature, and the company stands out due to its strong organic growth driven by its pricing power and the demand trend from wine to spirits.

 

•           RWE is a German utility, a traditionally defensive sector; it benefits from a growing renewables business and the ability to satisfy rising demand for flexible power capacity.

 

With its exposure to select defensive stocks, our 1Y USD JB Tracker Certificate on the Attractive Defensives Basket can help build some resilience in a portfolio as previous interest rate hikes are starting to bite and growth is slowing.

 

Source: Bank Julius Baer & Co. Ltd. (Julius Baer), unless explicitly stated otherwise.

 

For further information about this product click here:

 

 

 

IMPRINT

This content constitutes marketing material and is not the result of independent financial/investment research. It has been produced by Bank Julius Baer & Co. Ltd., Zurich, which is authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA.

 

This content is intended for information purposes only and does not constitute advice, an offer or an invitation by, or on behalf of, Julius Baer to buy or sell any securities, securities-based derivatives or other products or to participate in any particular trading strategy in any jurisdiction.

 

Julius Baer does not accept liability for any loss arising from the use of this document.

 

This content may include figures relating to simulated past performance. Past performance, simulations and performance forecasts are not reliable indicators of future results.

 

For further details about risks and suitability, as well as important legal information, please consult the following link: IMPORTANT LEGAL INFORMATION

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Greenback: Losing its sparkle (Leonteq Securities AG, 08.05.2023)
There is no doubt that the US dollar has been the world’s reserve currency for over 100 years. Just now, though, its status appears to have taken a knock. Recent developments on the global markets have raised suggestions that the greenback may have passed its zenith. The Middle Kingdom in particular would like to weaken the dollar's influence on global trade, which is why Beijing has lately put an emphasis on settling oil and gas deals in the yuan.

Headwinds

 

There is no doubt that the US dollar has been the world’s reserve currency for over 100 years. Just now, though, its status appears to have taken a knock. Recent developments on the global markets have raised suggestions that the greenback may have passed its zenith. The Middle Kingdom in particular would like to weaken the dollar's influence on global trade, which is why Beijing has lately put an emphasis on settling oil and gas deals in the yuan. Indeed, the communist government has just marked a further success: its state-owned oil and gas giant CNOOC and the French TotalEnergies completed the first LNG trade in the Chinese currency at the end of March.

 

Yuan in demand

Beijing has long been trying to conclude more trade agreements officially in the yuan, or renminbi (RMB), as the currency is generally known in the People's Republic. During a visit to the Saudi capital, Riyadh, in December 2022, president Xi Jinping made it clear that China would use the Shanghai stock exchange “to the full extent” as the platform for yuan settlements of oil and gas deals. This strategy of the Middle Kingdom is being well received in Russia especially, which is increasingly accepting the yuan as a result of Western sanctions. There is still a long way to go before the greenback is booted out completely as the global reserve, however, with some 41% of world trade being transacted in dollars and only around 2.7% in the yuan. Furthermore, about 60% of all foreign exchange reserves are held in the US currency in the form of government bonds, for instance. Here, though, China is coming back into the game: its US government bond holdings amount to some USDtn 1. Should Beijing put these on the market, the greenback would be severely weakened and could possibly lose its dominant position.

 

Catching up in the medium term

On the one hand, then, possible bond sales hang over the dollar like the sword of Damocles. On the other, China is keen to establish its own currency in global trade. The joint study by the Wilson Center and the British market researcher Enodo Economics comes to the conclusion that Beijing will make progress over the next five years, particularly in sectors that had not previously been critical to Beijing’s internationalisation of the RMB. Among the main sectors cited by the experts, for instance, is the increasing inflows of Chinese savings into Hong Kong's financial markets. In addition, Beijing is set to make technical adjustments so that Chinese government bonds can be used as security for cross-border financial transactions, something which could trigger a worldwide surge in demand for these instruments.

 

Marked interest rate gap

Another factor dragging on the greenback is the sometimes huge difference in interest rates between the USA and emerging countries. Both the Mexican and the Brazilian central banks, for instance, had already stepped on the monetary policy brake before the Federal Reserve did so, which in turn led to positive interest rate differentials against the US dollar. The Banco Central do Brasil started its cycle of increases back on 17 March 2021, hiking the base rate from 2.00% then to 13.75% now. To compare, the Fed has lifted its interest rate spread from 0.00% to 0.25% in March 2022 to 4.75% to 5.00% now. The significant widening of interest rate differentials is also driving exchange rates, with the Brazilian real appreciating by about a tenth against the greenback since May 2021.

 

Graph: Interest rate and currency movements USA/Brazil

Source: Central banks, Refinitiv

 

 

“All against one”: Inverse capital protected note on a foreign exchange quintet

 

Race to be the world’s reserve currency

Finance ministe John Connally achieved global fame in 1971 with the comment that “The US dollar is our currency but your problem”. The then member of the Nixon government is still quoted frequently today. The dominance of the US dollar, however, is increasingly being called into question. The BRICS states especially, an economic grouping made of Brazil, Russia, India, China and South Africa, would like to form a counterbalance. This quintet, which accounts for some 40% of the world's population, has long been demanding reform of the international currency and financial order. At the 14th BRICS summit last year, the five member states announced they were working on a “new global reserve currency”.

 

EM carry trades

It is not only efforts such as these that could impair the US dollar’s dominance: the emerging countries also enjoy an interest rate advantage over the USA as well as brighter economic prospects. According to the forecasts published by the International Monetary Fund (IMF) in January, US growth will slow to 1.4% this year and then to 1.0% in 2024. By comparison, the IMF reckons emerging markets will expand by 4.% in 2023 and 4.2% in 2024. Market players see these trends as fertile ground for EM carry trades. In a carry trade, capital is raised in regions with low interest rates and invested in higher interest-bearing securities in a different currency in another market.

 

EM currencies in demand

According to Jon Harrison, managing director for emerging market macro strategy at TS Lombard, the Brazilian real and the Mexican peso have recently been the top targets for EM carry trades as they are supported by proactive central banks and relatively high real interest rates. This is reflected by movements in exchange rates: the real has appreciated 7.0% against the US dollar this year alone, while the figure for the MXN/USD FX duo is as high as 7.5%. This is a trend that is being seen across the board in emerging markets, with the Emerging Market Currency Index, the MSCI EM FX, for instance, in which the Chinese renminbi is the heavyweight with a 30% share, climbing just under 3% this year.

 

Capital protection combined with leverage

Leonteq has taken the latest developments on the foreign exchange markets as an opportunity to put together an interesting basket in which five EM currencies compete against the US dollar: the Chinese renminbi, the Indian rupee, the Brazilian real, the Mexican peso and the South African rand. The new “Inverse Capital Protected Note” enables investors to take advantage of a further appreciation of the five EM currencies against the US dollar while protecting their capital. The product has a term of 18 months and participates at a high rate of 250% in the equally weighted basket comprising USD/BRL, USD/MXN, USD/ZAR, USD/INR and USD/CNH. The capital protection level is 100%, which means that the nominal is fully protected at the end of the term.

 

Graph: USD/MXN (1 year)

Source: Refinitiv

 

 

 

Legal Disclaimer

 

This document constitutes Advertising within the meaning of article 68 of the FinSA.

 

This publication serves only for information purposes and is not research; it constitutes neither a recommendation for the purchase of financial instruments nor an offer or an invitation for an offer. No responsibility is taken for the correctness of this information. Investors bear the full credit risk of the issuer / [guarantor] for products which are not issued as COSI® products. Before investing in derivative instruments, investors are highly recommended to ask their financial advisor for advice specifically focused on the investor´s financial situation; the information contained in this document does not substitute such advice.

 

This publication does not constitute a simplified prospectus pursuant to art. 5 CISA, or a listing prospectus pursuant to art. 652a or 1156 of the Swiss Code of Obligations. The relevant product documentation can be obtained directly at Leonteq Securities AG via telephone +41 (0)58 800 1111, fax +41 (0)58 800 1010, or via email termsheet@leonteq.com.

 

Selling restrictions apply for the EEA, Hong Kong, Singapore,the USA, US persons, and the United Kingdom (the issuance is subject to Swiss law).

 

The Underlying’s performance in the past does not constitute a guarantee for their future performance. The financial products' value is subject to market fluctuation, which can lead to a partial or total loss of the invested capital. The purchase of the financial products triggers costs and fees. Leonteq Securities AG and/or another related company may operate as market maker for the financial products, may trade as principal, and may conclude hedging transactions. Such activity may influence the market price, the price movement, or the liquidity of the financial products.

 

Insofar as this publication contains information relating to a Packaged Retail and Insurance-based Investment Product (PRIIP), a Key Information Document in accordance with Regulation (EU) No 1286/2014 (PRIIPs Regulation) is available at https://www.priipkidportal.com/

 

Any - including only partial - reproduction of any article or picture is solely permitted based on an authorization from Leonteq Securities AG. No responsibility is assumed in case of unsolicited delivery.

 

© Leonteq Securities AG 2023. All rights reserved.

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Disruptive technologies potentially worth trillions of dollars (Leonteq Securities AG, 24.02.2023)
A few days ago investment company ARK Invest published a pretty hefty tome offering investors its regular assessment of the future technologies that deliver the greatest potential. Entitled “Big Ideas” and covering no less than 153 pages, the report shines a light on a raft of mega-trends, from the electric car through molecular cancer diagnostics all the way to AI and bitcoin.

Mega-trends identified

A few days ago investment company ARK Invest published a pretty hefty tome offering investors its regular assessment of the future technologies that deliver the greatest potential. Entitled “Big Ideas” and covering no less than 153 pages, the report shines a light on a raft of mega-trends, from the electric car through molecular cancer diagnostics all the way to AI and bitcoin. In all, the experts analyse 14 disruptive technologies whose value could appreciate by 40% a year until 2030. According to ARK, this will in turn have an enormous influence on the capital markets. The fund boutique anticipates that these markets will account for the greater part of global stock market capitalisation by the end of the decade.

 

Bitcoin bull market ahead

That ARK is not shy about optimistic expectations is evident from the forecast for Bitcoin. “Bitcoin’s long-term opportunity is strengthening,” says the latest Big Ideas issue. The management team reckons the price of the cryptocurrency will rise to USDmn 1.48 by 2030 in a bullish scenario. This corresponds to a compound annual growth rate (CAGR) of around 70%. Star investor and ARK founder Cathie Wood is somewhat more cautious in the case of a bear market, but still predicts a value of USD 258,500, which would be equivalent to a CAGR of 40%. One of the positives identified by Wood is that heavyweight institutions remained positive towards the asset class last year, when cryptos were suffering a significant correction. BlackRock, for instance, embarked on a partnership with Coinbase in June with the aim of giving institutional clients direct access to Bitcoin. Together they could pour trillions of dollars into the asset class over the next few years. In November 2022 Fidelity officially launched retail bitcoin and ether trading accounts enabling investors to trade and custody them on its platform.

 

On the trail of cancer

The ARK strategists led by Yassine Elmandjra divide the 14 disruptive technologies into five overarching investment themes which they predict will undergo a rise in market value of 41% p.a. on average to reach over USDtn 200 by 2030 (see graph). Alongside the public blockchains behind cryptocurrencies, these include artificial intelligence, robotics, energy storage and the multiomics sequencing of digitalised biological data. One of the aims of the last of these is to identify cancer reliably at an early stage. Multiomics testing, which includes other circulating tumour signals such as DNA fragmentation patterns, is the key to success here. The addressable market for molecular diagnostics is valued at some USDbn 95 in the USA alone. The molecular cancer diagnostics segment, according to estimates, is set to jump by more than a fifth each year to pass USDbn 24 by 2030. The ARK team believes manufacturers should be able to increase the value of their companies at a comparable rate.

 

AI changes the rules of play

One of the overarching themes is artificial intelligence (AI). This technology also reaches into other disruptive innovation platforms such as robotics. Intelligent machines, say the ARK experts, could permanently alter both infrastructure and the way in which products are made and sold. Take autonomous logistics, for example: the projections are for earnings in this sector to rise from almost zero today to USDtn 1 to 2 by 2030. One of the key elements is the autonomous delivery of food and parcels. The big techs, such as Alphabet with its “Google Wing” and Amazon with “Prime Air”, are already on the starting blocks with their self-developed drone and robot delivery solutions. Food and parcel drones could bring in revenue in excess of USDbn 700 by 2030. “The adoption of artificial intelligence should transform every sector, impact every business, and catalyze every innovation platform,” says ARK’s short and sweet summary of the potential of AI.

 

Development of disruptive innovation platforms by 2030

Source: ARK Invest

 

 

Bundled future opportunities: investing in 5 ARK ETFs with just one index

 

“The Big 5”

The now 67-year-old Cathie Wood founded investment company ARK Invest in 2014. The economist’s intention was, firstly, to focus solely on disruptive innovation, primarily in the public equity markets, and, secondly, to open up research and become a ‘sharing economy’ company in the asset management space. “We're all about finding the next big thing,” is one of Wood’s core statements. The global company has six ETFs under active management: ARK Innovation, ARK Autonomous Technology & Robotics, ARK Next Generation Internet, ARK Genomic Revolution, ARK Fintech Innovation and, since March 2021, the ARK Space Exploration & Innovation ETF as well. Other products offered include the 3D-Printing and Israel Innovative Technology index ETFs. In total, the firm currently manages some USDbn 11. The five biggest ETFs – ARK Innovation, ARK Autonomous Technology & Robotics, ARK Next Generation Internet, ARK Genomic Revolution and ARK Fintech Innovation – feature in the Disruptive Innovation Index launched at the end of 2020.

 

Corrections in the upward trend

Although the ARK specialists can look back on more than 40 years of experience in investment in technologies, they are not immune to setbacks. Soaring inflation coupled with hefty rises in interest rates have had a tangible impact on tech stocks – and thus ARK ETFs – over the past year. The flagship, the ARK Innovation ETF, for instance, lost around two thirds of its value in 2022. Genomic Revolution and Autonomous Technology & Robotics performed rather better, shedding “only” around half their value. Although Cathie Wood has recently made several adjustments in her portfolio, such as selling the stake in Nvidia and buying Tesla shares, she is still essentially following a clear strategy of investing in companies that own world-changing products. Satisfying the needs of investors focused on the short term, however, is not on her agenda. The funds are still ahead on a long-term view, with the biggest ETF, ARK Innovation, boasting a return of 10.00% p.a. since its launch. Even better were the performances of the two portfolios based on Genomic Revolution (12.20% p.a.) and Autonomous Technology & Robotics (14.40% p.a.).

 

“Buy the dip”

The Genomic Revolution ETF is dominated by molecular diagnostics, which accounts for just under a quarter. It is hardly surprising, then, that industry representative Exact Sciences leads the top 10 components in the portfolio. The company has specialised in the detection of cancer at an early stage, bringing the first stool DNA test for bowel cancer onto the market in 2014. Operationally, things are going well at Exact just now: at the beginning of January, the group issued a sales forecast above analysts’ estimates. The heavyweights of what has been the strongest ETF since its launch, Autonomous Technology & Robotics, are Trimble, Kratos Defense & Security Solutions and Tesla. Cathie Wood has been particularly fortunate with Tesla of late: at the turn of the year investors reached eagerly for the e-car pioneer, true to the motto “buy the dip”. They were right to do so – Tesla’s share price has almost doubled so far this year.

 

Five winners in one package

The ARK Invest ETFs have delivered an impressive turnaround in what is still a relatively young stock market year. The ARK quintet in the Disruptive Innovation Index have posted double-digit percentage growth overall. The front runner so far is the ARK Next Generation Internet ETF, which is up 29.60%. As a consequence, the tracker on the Disruptive Innovation Index that was brought into being by Leonteq in November 2020 also turned sharply upwards again. The CHF version of the participation instrument has appreciated by a fifth since New Year, while the USD-denominated instrument has advanced by as much as 22%. The index, in which the five actively managed ARK ETFs have equal weighting, also considers the dividends, which are reinvested in the respective ETFs. The tracker gives investors access to a broad range of technology mega-trends in a single trade. There is a fee of 0.75% p.a. An annual rebalancing ensures that the five underlyings always start the year with equal weightings.

 

 

Chart: ARK ETFs performance 2023

Source: ARK Invest

 

 

Legal Disclaimer

 

This document constitutes Advertising within the meaning of article 68 of the FinSA.

 

This publication serves only for information purposes and is not research; it constitutes neither a recommendation for the purchase of financial instruments nor an offer or an invitation for an offer. No responsibility is taken for the correctness of this information. Investors bear the full credit risk of the issuer / [guarantor] for products which are not issued as COSI® products. Before investing in derivative instruments, investors are highly recommended to ask their financial advisor for advice specifically focused on the investor´s financial situation; the information contained in this document does not substitute such advice.

 

This publication does not constitute a simplified prospectus pursuant to art. 5 CISA, or a listing prospectus pursuant to art. 652a or 1156 of the Swiss Code of Obligations. The relevant product documentation can be obtained directly at Leonteq Securities AG via telephone +41 (0)58 800 1111, fax +41 (0)58 800 1010, or via email termsheet@leonteq.com.

 

Selling restrictions apply for the EEA, Hong Kong, Singapore,the USA, US persons, and the United Kingdom (the issuance is subject to Swiss law).

 

The Underlying’s performance in the past does not constitute a guarantee for their future performance. The financial products' value is subject to market fluctuation, which can lead to a partial or total loss of the invested capital. The purchase of the financial products triggers costs and fees. Leonteq Securities AG and/or another related company may operate as market maker for the financial products, may trade as principal, and may conclude hedging transactions. Such activity may influence the market price, the price movement, or the liquidity of the financial products.

 

Insofar as this publication contains information relating to a Packaged Retail and Insurance-based Investment Product (PRIIP), a Key Information Document in accordance with Regulation (EU) No 1286/2014 (PRIIPs Regulation) is available at https://www.priipkidportal.com/

 

Any - including only partial - reproduction of any article or picture is solely permitted based on an authorization from Leonteq Securities AG. No responsibility is assumed in case of unsolicited delivery.

 

© Leonteq Securities AG 2023. All rights reserved.

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