Sandeep Malhotra, head of global investment strategies at Clariden Leu, talks to Innovative Investor about the hard lessons being learning in the global financial crisis, and the benefits of a maintaining a defensive, conservative attitude towards risk.

The size of the retail/high net worth structured products market has declined significantly over the last financial year. What are your expectations the current financial year?

In the area of structured products, the difficult market environment in autumn led to a fall in demand. Clariden Leu has decided to pursue its activity in this market in the future. Structured products will continue to warrant their spot in well diversified portfolios, since there is hardly any other instrument that can control the risk-return characteristics so precisely.

What are the biggest opportunities that you see in the coming 12 months?

We think that currently bonds of defensive corporations with relatively stable cash flows and little financing needs like basic food producers, some pharmaceuticals, telecoms or utilities offer the best ratio between risk and reward.

How has the global financial crisis affected the way you manage your portfolios?

As private bank we have always managed our clients' portfolios in a relatively conservative manner as a general rule. We increased this conservatism further by reducing the holdings of equities and hedge funds.

What is the biggest lesson you have learned from the credit crisis?

Everything is possible, even the opposite. Asset protection and risk management have to be strengthened further.

Do commodities have the potential to add value to an investor's portfolio at the moment?

As long as there is no end of the economic crisis in sight, we don't expect commodities to provide substantial gains. We think that it is too early to enter these markets aggressively, but commodities offer a good diversification and should be part of every portfolio, even if we currently underweight them. Over the medium term we are convinced that the longer the currently low price level persists the stronger will be the rebound later.

What defensive stocks are you recommending at the moment?

We like stocks with strong balance sheets and predictable cash flows, such as Swisscom, Novartis, Abbott, Nestlé, McDonalds etc.

Is end-investor education still found wanting in most cases? How can this situation be improved?

We are an international private bank focused on wealthy customers. They are sophisticated investors. Most haven't been involved in the securities markets for many years. Their approach to risk and their return expectations reflect this.