Asset Management at Banca del Sempione SA

Objectives

In a world characterised by increasingly squeezed yields expected for traditional risk categories (shares and bonds) and by more and more frequent market shocks, the objective set by Banca del Sempione’s asset management is to achieve a real growth in capital in the medium-long term. To achieve this result we use the most advanced and innovative techniques accompanied by the healthy values of a Swiss tradition and culture which within the area of asset management can rely on people with an excellent level of professionalism.

Investment Philosophy

Our investment philosophy is based on five main principles:

• Composition of profits
• Drawdown reduction
• Discipline of the method, rather than “passivity” of the method
• Reduction of cognitive and emotional biases
• Limited presumption of market timing

Specifically, a reduction in drawdowns (i.e. negative fluctuations in asset values) combined with capitalisation of profits (defined by Einstein as the eighth wonder of the world), allows for triggering a snowball effect, through which profits are generated on profits , resulting in growth of invested capital over the medium-long term.

Portfolio and Benchmarks

It is worth emphasising that the portfolio structure is a starting point, determined by the individual client’s propensity to risk. Once this is decided, we do not want to statically replicate the benchmark, but offer meaningful portfolio management flexibility (see chart).

For example, regarding equities, which are the most volatile component of the portfolio, we want to maintain the flexibility to drastically reduce them in case of an unfavourable stock market view and to increase them when we think it is advisable. This rule also applies to the other assets classes when, based on our analysis, they offer opportunities for gain or there are dangers that signal a sale. Flexibility, then, combined with a sharp focus on risk in the attempt to regulate asset growth.

Asset Classes and Instruments

Along with cash, bonds and stocks, we also invest in alternatives, such as funds of hedge funds, convertible bonds, commodities and precious metals.

Currency diversification makes an important contribution to achieving our objectives. Part of the equity allocation is invested in stocks with a shorter time horizon, always on the search for new investment opportunities.

If deemed more attractive, equity exposure is implemented through options or options structures on individual shares. On the bond side, we focus sharply on maturity and prefer certain segments of the yield curve.

We constantly evaluate the proportion between government and corporate bonds, with a focus on the risk/reward ratio for individual investments. Our sharp focus on risk is also expressed through the use of index options to hedge the equity allocation if our analysis signals probable corrections.

The investor’s propensity to risk and fluctuation range by asset class:

Investments Profiles

“Fixed-Income” Profile

The priority objective of the “fixed income” profile is to conserve asset value and to achieve a flow of income at regular intervals in the form of interest.

Instruments Used

Exclusively money market, bond market, and products with similar risk profiles.

“Income Plus” Profile

The mandate is mainly designed for clients who want to move towards Asset Management but who so far have invested in bonds.  The strength of this product is its simplicity, transparency and liquidity.  At a time like now, when government bonds offer a low yield and the stock markets have undergone a sharp correction, this solution is, in our view, particularly attractive.

Instruments Used

The allocation to shares can range from 0% to 15% and it will be actively managed, taking advantage of both benchmark extremes.

“Dynamic” Profile

The “Dynamic” profile aims at maintaining asset value in real terms over the long run and, at the same time, it allows for participation in the stock market in proportionally modest amounts and so with minimum price risk. The flow of income at fixed intervals is augmented by dividends and capital gains.

Instruments Used

Mostly money market, bond market, and products with similar risk profiles, and stocks to a limited extent.

“Balanced” Profile

The “balanced” profile is designed to favour real asset growth. Through more exposure to the stock market, in this profile capital gains have a greater weight than interest income.

Instruments Used

Diversification balanced among the money market, bonds, shares and products with similar risk profiles.

“Growth” Profile

The “growth” profile pursues the objective of long-term appreciation in real asset value through vast and well diversified exposure to various global stock markets. However, participation in stock market fluctuations presumes the willingness to accept fluctuations in average prices.  Capital gains normally comprise the bulk of income flow.

Instruments Used

Diversification with a preference for investment in stocks and products with similar risk profile.
The remaining portion in money market and/or bond market.

“Equity” Profile

The “Equity” profile has the most aggressive strategy.  The assets are mostly invested in stock and pursue high long-term capital growth. Stock market price fluctuations are the major risk factor, so the investor must be aware of high exposure to stock and currency market volatility.

Instruments Used

Exposure mainly or totally to the stock market and products with similar risk profile.