Global Private Banking recovering, in part because banks Hedging Against Inflation: In Short-to-Medium Dated Quality (typically among the high dividend financial markets, no inflation Credit: our large overweight of payers) are getting a lift from rising hedge is perfect, but we find three short-to-medium dated and high- rates. From a style perspective, avenues attractive. Firstly, the energy rated bonds in our core portfolio is dividend stocks tend to be value sector should continue to generate also reflected in our high conviction oriented, which can help balance substantial cash flows, even after themes. We continue to focus on portfolios that are heavy on growth the fall of energy prices. And in investment grade, because we think stocks. They also tend to have a the event that prices were to spike high yield spreads are somewhat quality bias and often qualify as ‘low again and cause CPI to rebound, the too tight and sensitive to the growth volatility’ stocks, which should help sector would outperform. Second, slowdown. And we prefer short-to- as we expect market volatility to we like consumer staples stocks medium maturities as credit yield remain higher than usual. with strong market positions as food curves are very flat and hence, it Recession Survivors: The UK is and goods inflation is often passed does not pay to try to get a higher in recession and we expect the on to the consumer, lifting revenues yield by extending duration. Investors Eurozone to enter a recession soon. for those companies. And lastly, we who worry that policy rates could go So we are underweight on the region look at infrastructure, as many of even higher than what is currently in our equity portfolios and look them benefit from a link (often set priced in can add floating rate notes. for companies that can weather a by the regulator) between their input DM Financials – Moving up recession. Such companies will have costs and the prices they charge, the Capital Structure: Banks a quality bias, i.e. strong market which protects their profits. We have strengthened their capital positions and resilient earnings, as have removed real estate from this and liquidity ratios in response to well as manageable leverage. In high conviction theme, as higher stringent regulatory requirements addition, the companies we look borrowing costs may continue to under the Basel III accord. That said, for tend to be in defensive sectors, weigh on real estate values, but Tier 1 capital can be sensitive to such as energy, consumer staples real estate continues to be a key the local economy and sovereign and healthcare. component in a well-diversified spreads, especially in Europe, where core portfolio. the economy is weakening. In that context, we are moving up the capital structure, to Tier 2 and Senior unsecured bonds. We find yields attractive in this area, compared to both sovereign and non-financial bond yields. 19