We talk to the Paris-headquartered bank and its wealth management business about its approach to investment in a period of change.

There are many factors in play for investors now that 2024 has wound down, but an umbrella theme for them can be summed up under the term of “shifting regimes,” according to BNP Paribas Wealth Management.

For example, there are shifts being driven by technology, not just AI, but in areas such as healthcare treatments and technologies for example wearables, new diagnostics, etc. Another shift has been the breakdown of the old idea that because bonds behave differently from stocks they reduce correlations. The falls in both markets in 2022 as rates rose sharply undermined that notion. 

A further big shift is in the demand for energy – the rise of a large, increasingly affluent population in the Indian sub-continent and much of Asia. Additionally, there are the transitions caused by decarbonisation

BNP Paribas WM is broadly overweight risk assets. However, there are certain shifts – the big play by the “Magnificent Seven” big techs may not be so obvious any more. Property and commodities are coming back into the frame. Clients still remain too heavy in cash, Edmund Shing, global chief investment officer at BNP Paribas Wealth Management, told this news service in a call. 

A bit of “euphoria” seems evident in US equities and is spilling over into areas such as cryptos. Investors need to diversify, Shing continued, 

In the field of commodities, there have been short-term problems, caused by the economic woes of China, which has been a big consumer of commodities. In the medium term, however, the story is far more constructive. “There is a theme there that we would play,” Shing said. 

“You cannot have energy transition without accelerated consumption of commodities up front,” Shing said, referring to the demand for substances such as rare earths, concrete, copper and cement.

“There is a whole chain of investments around the energy sphere that we like,” Shing continued.

Spreading risks 
Given the geopolitical challenges of sourcing materials from some countries that produce rare earths, etc, the French bank likes to use funds to spread risks. BNP Paribas uses funds for physical commodity exposures, such as gold, which it likes as portfolio insurance and firms in adjacent areas such as copper mining.

BNP Paribas, Shing said, also likes alternative UCITS funds and hedge funds that can generate bond-like returns but are less correlated to the equity market than bonds. Such market-neutral hedge strategies can deliver 5 to 6 per cent annualised returns. Trend-following strategies are “excellent diversifiers and they did well when stocks and bonds fell together,” he continued. “We want something that is long volatility.”

The bank also likes buffered ETFs (which use options and other strategies to curb downside risks).

“A majority of our investors are relatively conservative investors,” Shing said. 

This news service asked Shing about the current enthusiasm that appears to be prevalent for private markets.

Among wealthier clients, such as those at the UHNW end, they are holders of private investors. One benefit of holding such investments is that they deter clients from their “worst emotions” – selling assets at the bottom of a market, Shing replied. 

Finally, this publication asked Shing about the role of framing clients’ expectations realistically. “The value of using a manager like us is protecting you in the down years. When the bad times come, clients always want to sell but the correct answer is to do the opposite,” he responded.