It is obvious that trends and topics such as artificial intelligence (AI), Bitcoin, sovereign debt and sustainable investing are currently driving investors around. The research departments of banks are producing a huge number of studies in which chief economists and chief strategists draw up scenarios, estimate probabilities and give general advice.

But what does the implementation look like in everyday investment life? finews.ch spoke to Romain Pasche about this. He has a wealth of experience, having worked at J.P. Morgan Chase, as Head of Global Equity Research at Vontobel Asset Management and as an equity trader and equity analyst at UBP.

The Pitfalls of Implementing Asset Allocation

He has now been Global Head of Investment Content & Delivery at EFG International for eleven years, where he is responsible for implementing strategic asset allocation. This means he decides which shares, bonds, exchange-traded funds (ETF) or structured products end up on the recommendation lists or in clients' portfolios.

To do so, he must of course know their preferences, which can vary from region to region. «Americans traditionally have a high exposure to US equities, while Asians like to use structured products,» he gives an example.

«Enormous Concentration and Cluster Risks in the Portfolios»

While there may not be a «standard» client, certain trends are still apparent. «AI has been a major topic for months, and our clients have been dealing with it a lot.» For years, the share prices of the «fabled seven» or «Magnificent 7» (Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta and Tesla) have only known one direction, so that they now dominate the overall market.

Pasche explains, «In some cases, clients have had an enormous concentration of assets, leading to corresponding cluster risks in their portfolios.»

Why Clients often Behave Quite «Sticky»

«Some time ago – months before the Deepseek episode – we started urgently advising clients to diversify more. It had also become increasingly difficult for us to analytically justify the extremely high share prices with reasonable arguments.» As an alternative to the US tech giants, small- and mid-caps from the USA, which Pasche considers to be reasonably valued, come into question.

Did EFG clients follow the advice and reallocate in good time? «Clients are often quite sticky and are reluctant to realize book profits because they are hoping for more.» Pasche sees Deepseek (the Chinese company that can apparently produce AI software much more cheaply than its US competitors) as a wake-up call that reminds customers that concentration risks can also materialize.

AI Users Benefit from Lower Prices

«But there will also be winners and losers in this area.» If AI actually becomes much cheaper, those companies that use AI applications will benefit. Diversification is also recommended because, according to Pasche «no one knows how many more deepseeks there are out there.»

US AI companies are not the only ones currently facing headwinds. The environmental, social, and governance (ESG) sector has also been experiencing strong resistance from the West for some time now.

ESG: Great Interest in Information, but Less Appetite for Implementation

«The vast majority of our clients are very interested in ESG issues. But only a few really implement the ESG guidelines fully in their investments,» says Pasche, confirming the existence of the notorious ESG gap. As soon as there are restrictions on investment opportunities, the appetite for ESG decreases noticeably. Accordingly, the attitude of clients towards ESG has hardly changed in recent months, so there is no rollback.

The fragile political situation in France regularly leads to lively discussions with domestic and foreign clients. «The weak economic momentum in Europe is a key factor in stock and bond selection, while the stability of public budgets remain crucial for bonds,» Pasche explains.

France: «No Plan for Sensible Debt Management»

In France, the fact that debt is already high and there is no visible plan for sensible debt management is a negative factor. «Visibility is currently poor in Germany too, but debt is at a much more reasonable level there thanks to the debt brake.»

Nevertheless, unlike other banks, EFG has not yet issued a general ban on French government bonds in its client portfolios. «However, our economists are monitoring developments very closely.»

EFG International is fairly conservative when it comes to cryptocurrencies, which are known to have had an exceptionally good run in the past year. «We only recommend assets to our clients that we can analyze, understand and evaluate,» says Pasche. Only then can you take responsibility for recommendations. And because this is not the case with Bitcoin & Co, this asset class has no place in the asset allocation.

Interest in the Technology, but no Place for Bitcoin in Asset Allocation

However, EFG clients can buy cryptocurrencies via ETFs if they wish. At the same time, the bank has taken note of the private sector's growing interest in blockchain technology. Like many financial institutions, it has been actively following developments in distributed ledger technology for some time.

«In general, certain customers are looking for assets that are independent of central bank policy, like crypto and gold,» observes Pasche. He therefore also compares Bitcoin to private currencies in the 19th century (in the era of free banking), before the state took over the monopoly on banknotes. «That was a pretty dangerous world for money holders, as these private currencies were not accepted everywhere as a means of ppayment and their value was very volatile.»

Why Structured Products Make Sense

The debate over the merits and drawbacks of structured products hasn't lasted as long as the controversy surrounding private money, but it has still persisted for a quarter of a century. Pasche has a clear position on this: No, not all structured products can be replicated easily and more cost-effectively with shares, bonds and standardized options. «But historically, there have been some providers who demanded margins that were too high.»

Nowadays, competition and the open architecture ensure attractive prices. «Many investors appreciate the fact that they can quickly diversify their portfolio with structured products and quickly adjust their risk profile.»