Rothschild Wealth Management Keeps It Real Amid Inflation Concerns

Tom Burroughes

1 May 2013

Rothschild Wealth Management is keeping faith with the “real assets” of gold, commodities, property and equities to provide some inflation protection at a time when central banks are heading into uncharted territory with heavy amounts of money printing.

In a regular commentary, Dirk Wiedmann, head of investments, said that global economic growth will remain “weak” although risk asset prices should be supported for the rest of this year by low interest rates and quantitative easing.

He noted that Bank of Japan governor, Haruhiko Kuroda, newly installed since the national elections of last December, has pledged to increase inflation to 2 per cent within two years through aggressive monetary policy and double the monetary base of the economy. This process has already boosted Japanese share prices and weakened the yen’s exchange rate.

Likes

Rothschild Wealth Management is favourable towards the following areas in its asset allocation thinking, Wiedmann said:

-- “Leading global businesses”, which he says are fairly valued and pay solid dividends;

-- Currencies such as the Norwegian krone and Canadian and Singaporean dollars. Wiedmann added that gold can be seen as a global hard currency;

-- Emerging markets;

-- Japanese equities. “This market has been shunned for a long time but, today, it looks very cheap on valuation measures such as the price to book ratio. In our view, a weaker yen and negative real interest rates could trigger a further re-rating of Japanese equities over the next 12 to 18 months,” said Wiedmann;

-- Large technology stocks. The firm argues that such firms are generating cash, and returns on invested capital are generally in the double digits. Debt levels are low, valuations are attractive and sales growth has also been strong, with revenues rising sharply; and

-- “Cheap hedges”. Leading government bonds cannot be relied on to defend capital in difficult markets. Instead, Rothschild Wealth Management is using specialist hedge funds, option strategies and precious metals to defend its portfolios against risks.

Dislikes

Wiedmann said the firm dislikes cash, as returns after inflation are negative. It is bearish about “high quality” government bonds as yields are too low to compensate for risk.