Posted inFRENELUXAbsolute ReturnAlternatives

It’s all gold that glitters in Monaco

The precious metal had been out of favour for years, but times have changed. Gold has been by far the best performing asset class year-to-date, and Monaco’s investor community believe the time has finally come to buy gold again. 

They are prepared to take this bet because gold is supposed to be an uncorrelated investment which tends to perform strongly in times of elevated macroeconomic uncertainty like today. And Monaco’s fund buyers have been looking to increase their allocations to such alternative investments for at least a year (see below). However, their gut feeling that the tide for gold has finally turned after so many years of poor performance probably plays a main part in their considerations too.

So while six in 10 interviewees intend to increase their exposure to commodities, by far the highest figure in Europe, this mainly reflects the popularity of gold. Other commodities, such as oil, look much less appealing. Local fund buyers are hesitant to take exposure to the oil price. They acknowledge the ‘black gold’ is now very cheap, but they are taken aback by its volatility and the correlation it has to GDP growth. 

Absolute return trend continues

In Monaco, safer alternatives are preferred. That’s why absolute return fund are also more popular than anywhere else in Europe. Monaco is the only financial centre in Europe where everybody uses absolute return funds, and an overwhelming majority of interviewees are planning to increase their allocation. Though most of them have only been investing in absolute return funds for a year and a half or so, local fund selectors are convinced it is what they need. Most of their clients are primarily focused on capital preservation, and are therefore a perfect match for absolute return funds. 

 

 

 

Monaco is the only financial centre in Europe where the different sub-categories of absolute return that we discern are all popular. Long/short equities lead the pack with two thirds of fund buyers wanting to buy more, followed by global macro (58%). Multi-strategy and long/short debt funds are also popular, with half of interviewees intending to increase their allocation. Many interviewees have been looking to replace part of their traditional fixed income exposure with long/short debt funds, but they have been struggling to find satisfactory alternatives.  

Part of the Bonhill Group.