2025 was plagued with macro and geopolitical uncertainty. 2026 is likely to continue in the same vein. Furthermore, the United States faces a new electoral timeline with the mid-term elections.

With this backdrop in mind, the authorities cannot provide clear guidelines as to their future monetary policy direction. The trend of lower rates initiated in 2025 could indeed continue. How it is rolled out and at what speed is not so certain. We cannot exclude a return to stronger inflation prints during the year from weaker US Dollar levels, which, in turn, could stall the current ‘rate reduction’ process.

The arrival of a new Federal Reserve chairman is unlikely to bring any radical policy change on the part of this institution, as it needs to maintain a certain continuity for its own financial credibility. Barring an unforeseen material incident, the performance of our Fixed Income assets in 2026 should be carried by compounding interest returns with a capital gain potential contribution from an overall lower interest rate environment.

However, certain warning signs over the last few months push us to stay on the side of caution. Repo fails and private credit issues point to diminishing general liquidity in Fixed Income markets. To add to this, credit spreads are now trading at historically tight levels.

In conclusion to all these observations, risks to our credit instruments have been rising against our existing performance potential.

Our investment policy has been to allocate to large strong economic franchises as well as well-diversified quality ETFs, to mitigate the credit risk afore mentioned. Assets of household institutions and Fixed Income ETFs are less vulnerable to a sudden degradation in their risk profile. They are also less exposed to refinancing and liquidity issues from disorderly Fixed Income markets.

With uncertainty prevailing as to future of US interest rate levels notably 10 years and beyond, ASG has reduced the duration exposure of the portfolio. The allocation to cash and liquid short-dated assets has been increased substantially from July 2025 to January 2026. The main advantage of this allocation is that it now offers the portfolio investment optionality, in other words optimal investment nimbleness. It makes available an opportunistic arbitrage capacity moving forward to take advantage of events from more favourable market conditions. This overall positioning puts the portfolio in a position to move decisively to create substantial investor value in the future.

For the more risk exposed assets remaining, only those with a strong yield return and/or capital gain potential have been maintained. Their profile is analysed to evaluate their return potential to mitigate risks linked to widening spreads and interest rate volatility.

Our philosophy has been to maintain a reasonable balance between the performance potential versus the risk profile of the portfolio. The change in our investment mix since the end of 2025 underscores our strategic prudent risk positioning. Our primary concern remains optimal capital protection while ensuring healthy recuring investor returns over the long run.

Since the beginning of 2026, we took a strategic defensive stance for the time being with the long-term view being optimistic in regard to the easing monetary policy. In this market context, the entry point in a widening credit spread context could make a difference for executing our long-term view of a combination of high current yield and capital gain potential.

Ygal Cohen