An analysis of the performance of the portfolios of more than 100 banks in 2020 highlights the ability of many institutions to show a return of more than 20% in the year of the pandemic, says Zwei Wealth, a wealth management consultant.
The year of Covid-19 has been an excellent one for many asset managers and their clients, but by far not for everyone.
Consultant Zwei Wealth analysed the portfolio performance of over 100 banks in 2020 and ranked them according to their asset allocation. The results show that many clients outperformed the benchmarks. In this sense, the authors describe the performance as “good” to “very good”. “This proves that many managers have seized the opportunities created by the market turbulence,” comments Patrick Müller, Managing Director and co-founder of Zwei Wealth.
The right strategy, according to the consultant, was to “quickly rebalance portfolios during the equity downturn in March in order to maintain the planned strategic allocation and to redirect portfolios in favour of technology”, the study says. Some managers were surprised by the decline and were slow to react.
But the gaps between the best and worst managers have never been greater. “The reason for this exceptional situation is the large number of good managers,” says Patrick Müller. The average gap last year was 21.6 percentage points, compared to the historical average of 12.5 points.
In concrete terms, the median return in Swiss francs was 7.5 percent for the equity-oriented category (90 percent share, compared with 10 percent for bonds). The median means that the number of portfolios performing above this rate is equal to the number performing below it. The benchmark index gained 5%. The best performance was 28%, while the worst performance was negative by 5.4%.
In the growth category (65% equities), where the median return was 5.9%, the best portfolio gained 28.6%. The worst lost 4.2%. The median thus exceeded the return of the benchmark (2.7%).
Logically, given the lower volatility of bonds, spreads are lower in portfolio categories with a high proportion of bonds and a modest percentage of equities. In the “income” sub-fund, with 10% of shares, the median return was limited to 1.1% and gains ranged from 0% to 9.4%. Finally, in the pure bond mandates, the median performance was 1%. The best gained 9.2% and the worst lost 2.3%.
The study adds that managers who focused on traditional assets (equities, bonds, gold) enjoyed better performance than those who tried to diversify into hedge funds, commodities and structured products. Risk diversification has therefore not worked, says Patrick Müller.
According to Zwei Wealth’s observations, the managers increased the share of equities in the course of the year in order to regain some of the ground initially lost. They bought shares in the last quarter. As a result, the portfolios ended the year with a high share of risk.