Since the beginning of the year, trade and geopolitical uncertainties and the subsequent turbulence on the financial markets have called into question many asset allocation positions that were considered certainties. If US exceptionalism and the dominance of the dollar as the most important reserve currency come to an end, how can we hedge against currency fluctuations and which asset classes are suitable for diversification?

These were just some of the questions addressed by the expert panel at State Street's research retreat in Zurich on Wednesday.

Prospects Are far from Rosy

Since the beginning of the year, fundamentals, politics and the political environment have called investors' rosy outlook into question and created uncertainty. Government debt, inflation and the trade, customs and interest rate policies in the US are the focus of attention and are among the main concerns of investors.

These topics were the subject of a panel discussion with Anja Hochberg, Head Multi Assets Solutions at ZKB Asset Management, Stefan Beiner, Partner at the consulting firm C-Alm as well as Antoine Lesne, Head of SPDR ETF Strategy at State Street Global Advisors.

Pension Funds with Low US Risk

According to the consultant Beiner, Swiss pension funds have a comparatively low risk in relation to the US. Around two thirds of the bonds held are denominated in Swiss francs and the proportion in US and international equities and private equity is also comparatively low. «Here, the home bias ensures a rather low exposure«, he said. The real estate component also ensures stability.

«For many of our clients, the question is whether they should change their allocation.» Hedging against the dollar costs money and is therefore also associated with risks.

The dollar will remain the most important currency and will remain so for the next 10 years. «It seems to be a goal of the US government to weaken the dollar and they are currently managing to do this quite well,» says the C-Alm partner.

The panel participants agree on the question of whether the US could lose its special position as an investment destination. It will remain the most important market for the foreseeable future. «US exceptionalism is a fact and more than just a concept. You have to accept that,» says ZKB expert Hochberg. «The problem is that we have to give forecasts with a view of up to five years.»

Significant Shifts

ETF expert Lesne from State Street sees the situation differently for his clients. «Our portfolios are weighted differently to those of pension funds.» There have been significant shifts in the portfolios. They are focusing on more balanced compositions for hedging and there is a higher weighting of the mid-cap sector and towards other sectors. «The US still makes up a large part of the portfolios. However, more money is flowing into global indices than into purely US indices.»

Hochberg expects more investments in alternatives and private equity. «Their share will increase and new products are needed to open this up to asset management and not just for institutional investors.» Liquidity must also be secured.

Tariffs Can Have Structural Consequences

Changes in the political landscape or in geopolitics could continue to cause fluctuations on the markets, says Beiner. «But these are usually only short-lived. But tariffs are something else. They can have a structural impact»

Investors have moved and are trying to protect themselves with diversification. «Many are asking themselves to what extent their investments in regions, sectors or companies are exposed to risks in relation to the USA,» he added.

Lesne also notes that more money is flowing back into Europe and the emerging markets. Hochberg also expects a broader spread in asset allocation and more fragmentation.

Swiss Franc Remains «Safe Haven»

The panelists agree on the Swiss franc. The high valuation will not come to an end any time soon. «The franc is still seen as a safe haven and I don't think it is overvalued,» says Beiner. According to Hochberg, the reason for much of the franc's appreciation is the difference in inflation rates, which is likely to continue in the future.