Market activity / Wealth Management / Pension Provision / Risk
26. January 2023
10 minutes

Risk-conscious and disciplined through a turbulent 2022. Act smart.

If you had to describe the investment year 2022 with a few adjectives, «unusual», «volatile», and «challenging» would probably not be entirely out of place. In our review of the year, we would like to take a closer look at why this is the case and how it is possible to sleep better despite market turbulence.


In the course of 2021, Covid-19 slowly but surely lost its terror. The world (apart from China) opened up again, production ramped up, demand for goods and services picked up. However, the supply chains, which had been disrupted by the pandemic, were unable to keep pace with the huge pent-up demand on the demand side. The first signs of rising prices became apparent as early as the second half of 2021, and by early 2022 inflation rates and a freshening of monetary policy headwinds dominated the headlines. Even then, the financial markets saw dark clouds gathering on the economic horizon.

Russia's violent invasion of Ukraine reinforced this negative sentiment. On the one hand, the conflict and the Western sanctions fueled inflation (especially energy prices), and on the other hand, they put pressure on the already gloomy growth outlook. The out-of-control surge in inflation was followed by rising interest rates almost everywhere. The central banks tightened the screws: The US Fed was the first to do so, the ECB somewhat more hesitantly, and even the SNB heralded the end of the negative interest rate era. The yield curves increasingly flattened, i.e. the difference between longer and shorter maturities became smaller and smaller, in some places (e.g. in the USA) even negative. This, too, was a signal of recession or at least weak growth.


High inflation and rising interest rates had not been seen for a long time, and war in Europe was certainly not on the cards. This market environment was not only unfamiliar, but also increasingly uncomfortable. Inflation and economic concerns weighed on growth prospects, and rising interest rates weighed on the valuation of most asset classes. By mid-year, the result was a heavy loss almost everywhere. In the equity markets, interest-rate-sensitive technology companies suffered in particular - in other words, precisely those stocks that had set the tone in recent years.

Both equity and bond markets subsequently moved in step with rising and falling hopes of less rigorous intervention by central banks. The latter repeatedly reiterated their willingness to fight inflation, even if this would not leave the economy unscathed. Nonetheless, the financial markets staged strong recovery rallies at times (especially in October and November) - particularly when negative news arrived from the economic front. Bad news = good news: After all, all too negative consequences for the economy could encourage central banks to rethink. But central bankers remained consistent and disciplined. Despite these recovery trends, most markets were clearly lower at the end of the year.


Negative markets are nothing unusual per se. Even in the seemingly never-ending bull market since the financial crisis of 2008, there have been price setbacks from time to time (euro crisis, Brexit, Corona, etc.). If the investment horizon is sufficiently long, the portfolio sufficiently diversified and structured according to one's own risk profile, such phases should not pose a serious problem for an investor. However, 2022 proved to be very challenging in terms of diversification. As mentioned above, hardly any asset class was spared from the market turmoil. Just as most assets had benefited from falling interest rates in previous decades, they now suffered from their rapid rise. Diversification across asset classes proved extremely difficult. At the end of the year, for example, the global equity index was virtually on a par with the global government bond index (see Figure 1). This made diversification and risk management within asset classes all the more important.

Figure 1 - Equities and bonds lost equal value in 2022 (performance in USD)

OLZ minimum risk strategy meets expectations in 2022

This is precisely where OLZ's investment solutions come in. Our risk-based equity strategies were able to significantly reduce both volatility and drawdown in the volatile and negative market environment in most investment universes. After a challenging period in previous years, when market risks were historically low and price gains historically high, strategies with a clear risk focus were once again able to prove their worth. Taking our World ex CH equities fund (CHF hedged) as an example, Figure 2 clearly shows how outperformance developed practically in step with volatility (measured here by the VIX index): It increased in the downward phases and decreased in the strong countermovements.

Figure 2 - Volatility and market movement as main drivers of relative returns

But it wasn't just the pure equity strategies that fared much better than the broad market. Our mixed fund OLZ Smart Invest 65, for example, also clearly outperformed its benchmark index (Pictet BVG 40 Index) despite a higher equity allocation (65% vs. 40%), and reduced its annual loss by about a quarter - compared with an index with a comparable equity allocation (Pictet BVG-60 Index with 60% equities), the result was an even clearer outperformance (see Figure 3).

Figure 3 - Lower drawdown and volatility despite higher equity exposure

Also in 2023: Act smart with active risk management

The turbulence of the past year has once again confirmed to us how important it is to stick to our strict risk management, even after years of apparent carelessness in the financial markets. Our clients benefit from OLZ's scientifically based minimum risk approach, which ensures stability in the portfolio thanks to robust, risk-optimized equity strategies and bond portfolios with first-class borrowers. We are convinced that risk-conscious and disciplined investment pays off in the long run. Even if the new year brings further market turbulence, we look forward to constructive discussions and professional cooperation with our customers.