value along the way
Investment Outlook September 2016
Contents
INTRODUCTION 3 VALUE ALONG THE WAY
4
TRANSITIONING OUT OF LOW GROWTH
8
EQUITIES: A MORE BALANCED POSITION
10
BONDS: MIXING PROTECTION AND INCOME
12
COMMODITIES: TOWARDS A NEW EQUILIBRIUM
14
CURRENCY MARKETS STABILISE
16
REAL ESTATE: RESPONDING TO THE SEARCH FOR YIELD
18
PERFORMANCE 20 ASSET ALLOCATION PROFILES
21
CONTRIBUTORS 22
This is an international ABNÂ AMRO publication. Risk profiles and the availability of investment products may differ by country. Your local advisor will be able to provide more information.
2
Introduction
This Investment Outlook addresses the transition from the current world of positive but unspectacular growth to a new world where fiscal policies start to play a constructive role. This theme was first introduced in “Exploring New Facets,� our mid-year Investment Outlook published in June. The economy is progressing against all odds. Central bankers are sensitive to maintaining supportive financial conditions, equity markets have displayed a remarkable resilience, currency volatility is mild and bond yields are low. Our basic assumptions are that the world economy will progress at a moderate pace of around 3% and that the normalisation of US rates will be carefully managed. The major challenge for the investor is that there are several necessary transitions. The world economy needs to grow faster, the policies implemented by the large nations need to rely less on monetary stimulus and the Federal Reserve needs to raise rates and to avoid disruptions at home and in financial markets at large. The UK and EU also have to develop a new political and economic relationship. In the near term, there are US elections in November and throughout Europe in the rest of 2017. All of these transitions will be defining moments. We believe that they will generate opportunities for value creation throughout the transitional period and beyond.
Didier Duret Chief Investment Officer, ABN AMRO Private Banking September 2016
Equities remain central to driving future portfolio returns, with the caveat that the economic recovery is, in the short term, largely anticipated by the equity markets. The role of bonds in a portfolio has changed, however. Now, they are used more for portfolio protection than for generating income. Diversification and investment returns can be achieved with commodities and real estate. ABN AMRO Private Banking’s investment team, who are responsible for this Investment Outlook, provides more information on their recommendations in the pages that follow. Your Relationship Manager or local investment professionals stand ready to assist you to prepare for what is ahead in the rest of 2016 and beyond.
3
Value along the way
In the fourth quarter, there will be more value to be found in sectors and regions than in predicting the next move in equity indexes. Listed real estate will continue to attract capital. Commodities and specific bond strategies can add diversification, and cash can be deployed when opportunities appear.
4
Value along the way Investment Outlook September 2016
Active equity management: emphasising the return to be found in sectors and regions. Financial markets are recuperating after a hectic first part of the year, which shows that the world economy has an inner resilience to absorb risks. Central banks have proven to be effective in providing financial liquidity to stabilise markets when necessary. The world economy, however, is growing at a slow and unsatisfactory pace, and we are waiting for new and coordinated fiscal stimulus. Equity markets have anticipated the cyclical improvement we expect; and bond prices have risen in response to central bank asset-purchase programmes and demand from institutional investors. Volatility, which had risen in the first half of the year, abated significantly after the Brexit decision in June. And currency markets have stabilised, with the exception of the British pound and the Japanese yen. Political change is crucial for the transition to the next phase. And, while protectionism and populism create new risks, they can also be a motivating force to do things differently.
Our asset allocation rests on three pillars: XX
Active equity management:
emphasising the return to be found in sectors and regions. We
adopted a neutral exposure to equities in July, while intensifying sector and regional strategies. XX
Intense portfolio diversification through commodities and emerging-markets bonds & equities, and using targeted bond strategies to mitigate the risk of divergence from our moderate growth base-case scenario.
XX
An overrepresentation of cash for investing tactically and agilely in risky assets when volatility erupts.
On the way to better growth prospects XX
The forces that restrained growth in the first part of 2016 are abating. Past inventory destruction may support the further recovery of the manufacturing sector. Trend growth (1.5%) is achievable in the US in 2016, with moderate growth (1.5%) in Europe and target growth (6.5%) in China — where growth is supported by monetary and fiscal policies.
XX
A US interest rate hike can occur without trauma. The world economy and financial markets are in a better condition to absorb a US rate hike than before. In particular, emerging markets are less vulnerable.
XX
Elections in the US and in the major European countries will be defining moments for developing new policies, which can provide an impulse to economic growth.
5
Challenges XX
The world economy has resilience but little strength. It is vulnerable to external shocks or weakness in critical sectors because of low growth. Low growth
Active strategies
also hurts job creation and social integration and increases
neutral
inequality — the very issues driving political extremism. XX
Monetary policies to support growth have reached their limits. Lower and negative rates have
Cash
not solved the fundamental issue of declining productivity. XX
Political risk is growing. Nationalistic policies could
Real estate
hamper international cooperation, disturb world trade and Commodities
increase country-specific sovereign risk.
oil, gold, silver financials, utilities, industrials
Opportunities XX
Asia EM, IT, health care consumer staples
Equities
Equities: We prefer: sectors with long-term profitability, global scope and strategic drivers, such as health care
Hedge funds
and information technology; and defensive equities, such as those found in the consumer staples sector. Sectors with problematic business models (financials, utilities) or
investment-grade, EM bonds inflation-linked, high-yield
Bonds core government
that have largely anticipated the manufacturing recovery (industrials) are not preferred. Low-volatility strategies and defensive stock selection based on quality criteria
-30
-20
-10
can be used to buffer equity exposure. XX
Emerging-markets bonds and equities benefit from improved fundamentals in commodity markets, stable currency conditions and investment inflows from international institutional investors.
XX
Commodities have regained their diversifying role. A positive demand dynamic has made commodities less vulnerable to the oversupply situation seen last year in the energy sector.
XX
Core government bonds and inflation-linked bonds can protect portfolios from sharp movements in bond markets, inflation or other unexpected events. Didier Duret - Chief Investment Officer
6
10
active deviation (%)
20
30
Represents absolute deviation from the benchmark created by our active investment strategy. These decisions affect all the profiles. Profile 3 (balanced) is represented here. Source: ABN AMRO Private Banking
Transitioning out of low growth The global economy is strengthening but growth will remain modest and unspectacular. The biggest risks are coming from politics. Despite persistent monetary policy stimulus, economic
in a better situation to cope with this transition than when it was attempted before.
Sluggish growth around the world
growth has been tepid so far this year. Strengthening manufacturing and somewhat stronger growth in the US
Economic growth has been sluggish so far in 2016. The
should provide the basis for modest, but unspectacular,
eurozone has performed marginally better than expected,
improvement.
but this was largely due to one-off factors early in the year. The pace of growth is now back to trend growth of 1-1.5%.
Political risks dominate
In the US, economic growth has been much weaker this year than expected. This has been largely due to disappoint-
Risks to economic growth are largely from politics. The US
ing corporate investment and, in particular, to “destock-
elections are fast approaching, an Italian reform referendum
ing� by companies, as they use up inventories instead of
is occurring in October and there are general elections in
increasing production. There is, however, reason for some
France, the Netherlands and Germany next year. Meanwhile,
optimism. The negative growth contribution from invento-
the geopolitical situation remains tense.
ries has already lasted unusually long and cannot last much longer. A reversal should be expected, which would boost
We expect that monetary policy will remain extremely
economic activity. Corporate investment has also been
loose, but further, albeit very cautious, tightening in the
weak, in response to declining corporate profits. Recent
US seems inevitable later this year or early next year. We
data, however, suggest that the profit cycle is improving,
believe that the global economy and financial markets are
which should support corporate investment.
8
Group Economics Investment Outlook September 2016
Global manufacturing is gaining momentum
increase in risk aversion in financial markets. It is likely to be different this time around.
The global manufacturing cycle has also been weak. This is undoubtedly related to developments in the US, but also
First, a rate hike will occur against the background of an
to the slowdown in China. While the China slowdown is
improving global economy. Second, corporates in emerging
expected to continue, it will be gradual. Various indicators,
economies with relatively large dollar-denominated debts
such as Taiwanese exports and data from ports and airports
have likely learned from the past and hedged their posi-
in key economic areas, suggest that the global manufactur-
tions. And third, the currencies of emerging economies had
ing cycle is gaining momentum. (See Graphic.)
been depreciating for some time when the Fed hiked last December. This increased their vulnerability, which was
US rate hike will not be a surprise
expressed by large outflows of capital from emerging economies and led to a significant tightening of financial conditions in these economies, which had negative consequences for
Monetary policy remains very accommodative virtually
global financial markets.
everywhere. As the US economy is relatively far advanced in its recovery process, a further normalisation of monetary
More recently, however, emerging-markets currencies have
policy must be expected. The big question is not so much
been more stable and some have gained back the ground
when exactly the Federal Reserve will raise rates, but how
that they had lost. We therefore believe that this time
the global economy and financial markets will cope with it.
around, the Fed’s cautious first rate hike will be received more favourably.
The suggestion in May 2013 that the Fed was likely to taper its asset purchases led to a wave of risk aversion. And the
Han de Jong - Chief Economist
December 2015 US rate hike also contributed to a serious
Manufacturing is gaining momentum index 60
2 September 2016
55
50
US Eurozone China
45
Forecasts: Macro indicators (%)1
40 2010 2011 2012 2013 2014 2015 2016
Real GDP Growth 2017
Inflation 2017
ABN AMRO
Market view
ABN AMRO
Market view
US
1.9
2.3
1.9
2.3
Eurozone
1.0
1.2
1.5
1.3
UK
0.5
0.6
2.3
2.4
Japan
0.7
0.8
1.0
0.6
Other countries*
2.0
2.0
1.7
1.8
EM Asia
5.9
6.5
5.3
5.6
Latin America
2.2
2.4
11.4
11.4
Emerging Europe
1.9
1.8
5.1
7.6
World
3.1
3.6
3.2
4.6
As measured by PMI indices. Above 50 signals improvement; below 50 signals deterioration.
1 All forecasts are year averages. The regions’ weights are based on PPP exchange rates. *Other developed countries are Australia, Canada, Denmark, New Zealand, Norway, Sweden and Switzerland.
Source: Thomson Reuters Datastream
Source: ABN AMRO Group Economics, Consensus Economics, EIU.
9
Equities: a more balanced position Stocks continue to benefit from their relative attractiveness versus other assets and from their income potential. We have become more positive on emerging markets and the consumer staples sector. Equity markets gained steadily over the summer, after quickly recovering from the uncertainty following the Brexit
there is limited further upward potential. US markets, for example, are trading around their all-time highs. Political risk is also rising. For these reasons, in mid-July, we took some profits in our overweight equities position, reducing it to a more balanced neutral allocation.
Sectors and regions offer potential
vote. Investors are again focusing on equity returns, as positive drivers, including moderate global growth (in terms of
We also intensified our sector and geographical strategies,
both GDP and earnings) is restored. Later in the cycle, fiscal
because we believe there is more return to be found in
stimulus could add momentum. In a low interest rate envi-
sectors and regions than in the prospect of higher equity
ronment, an equity dividend yield of about 3% is attractive
markets overall. Stable markets have shifted the focus to
compared with most other asset classes.
bottom-up company and sector fundamentals. We continue to recommend investing in defensive companies that are reasonably-valued and have sustainable earnings growth.
Return to a more balanced allocation
Over the past quarter, we became more positive regarding After a few quarters of earnings recession, equity markets
the consumer staples sector. And, more recently, as our
have anticipated an improvement in earnings. This anticipa-
outlook for emerging markets improved, we increased our
tion occurred mainly in commodity-dependent companies.
investments there, particularly in Asia.
With current valuation levels at a forward-looking price-earnings ratio of 15.2x for the MSCI World Index, we believe
Stronger and faster earnings recovery expected in emerging markets* US 2015 2017F
Europe 2016F
2017F
Emerging Markets
Global equities
Neutral
15.2
-US (MSCI US)
Underweight
16.7
-Europe (MSCI Europe)
Underweight
14.6
-Japan (MSCI Japan)
Neutral
12.9
- Asia (MSCI Asia ex-Japan)
Overweight
12.9
- Latin America (MSCI Latin America)
Neutral
14.3
- Emerging markets EMEA
Neutral
10.2
2016F 2017F -3
0
3
6
9
12
15
(MSCI Emerging Markets EMEA)
*measured as earnings per share growth; F = forecast Source: MSCI, IBES, ABN AMRO Private Banking
10
Forward P/E 2017
Emerging markets
2015
-6
Position 7 Sept. 2016
Developed markets
2015
-9
Region
(MSCI World All Countries)
2016F
-12
Forecasts: equity indexes
Source: Bloomberg, MSCI
Investment Strategy & Portfolio Expertise Investment Outlook September 2016
Consumer staples sector now in favour
Emerging markets for diversification and return
We prefer defensive growth companies, as they fit the current environment of low growth, low interest rates and
The outlook for emerging markets is improving. We suggest
the search for yield. In this setting, we expect consumer
that investors consider adding emerging-markets equity
staples companies to perform well. The sector benefits
exposure, at the expense of developed markets, such as the
from stable cash flows from consumer demand, support-
US and Europe, to their portfolios. Commodity prices are
ing sales, profitability and dividends. Larger consumer
stabilizing, emerging market currencies have strengthened
staple companies will also have good exposure to emerging
and the economic outlook for commodity exporting coun-
market growth. Our other favourite sectors continue to be in
tries is improving. At the same time, emerging markets offer
the innovation-oriented information technology and health
diversification from the political risk present in developed
care sectors.
markets.
An investor could consider funding investments in our
Improving country fundamentals are also visible in emerg-
preferred sectors by selling industrial stocks, which suffer
ing-market company earnings, which are rebounding more
from an outlook for low capital expenditures. Furthermore,
vigorously than in the US and Europe (see Graphic.) Within
we continue to recommend a reduced exposure to the
emerging markets, we have a preference for Asian equities
stocks of financials companies, given low-for-longer interest
which, in addition to the stabilisation in commodities, are
rates, which pressure profitability. In general, our recom-
benefiting from solid consumer demand.
mendation is to invest in industry leaders and companies offering diversified exposure to growth.
Annemijn Fokkelman Global Head Equity Strategy & Portfolio Management
11
Bonds: mixing protection and income Government bonds and inflation-linked bond strategies offer protection from the risk of a recession or a surge in inflation. European corporate bonds and emerging-markets sovereign bonds are our preferred sources of return.
Bonds can add protection, but at a cost Bonds can act as protection (or insurance) for investor portfolios. With negative yields, however, it can be expensive protection. A depressed outlook (including for the US) is being priced-in to bond markets. We have more faith than
Bond markets absorbed the risks seen in the second quarter
the bond market that we are transitioning toward improving
by reducing yields by a few notches. But the Brexit vote
economic conditions.
showed that while core bond yields are quick to move down when there is a shock and investors want to avoid risk, they
Within the bond portfolio (see Graphic), we use government
are “sticky� on the way back up, when investors return to
bonds in two ways for portfolio protection. Our core govern-
risky assets.
ment bond strategy reduces interest rate exposure in US, German and Japanese government bonds when yields go
The large underweight in bonds in our asset allocation is
up and adds exposure when yields go down. Our European
owing to the expensiveness of bonds and the risks of the
inflation-linked bond exposure protects against a steeper-
return to more normal interest rates by the US Federal
than-expected rise in inflation. The bond market is ascrib-
Reserve. Our large cash position is due to our move away
ing a low success rate to central banks being able to revive
from negative yields.
inflation, which means that inflation protection can now be added relatively cheaply.
12
Investment Strategy & Portfolio Expertise Investment Outlook September 2016
No return without diversification Bonds have a role in portfolio diversification, as they traditionally move in the opposite direction to other risky
Bond portfolio composition
assets. But the benefits of diversification also apply within bond portfolios themselves. For example, we expect that
9%
8%
European corporate bonds (both investment grade and high 14%
yield) will be supported by the improving eurozone economy
16%
and the European Central Bank’s expanded corporate bond 11%
buying programme. But given that political risks in Europe are rising, we reduced exposure to eurozone peripheral bonds and diversified internationally, including into emerg-
42%
ing markets.
Core government bonds* Eurozone periphery government bonds European inflation-linked bonds
Emerging-markets bonds add income We believe that emerging-markets bonds offer a welcome contribution to income. This is owing to the new found stabilisation of emerging markets, relatively attractive yields and
European investment-grade corporates European high yield bonds Emerging markets sovereigns
*Using an active duration strategy and investing in US, eurozone and Japanese government bonds. Source: ABN AMRO Private Banking
somewhat lower correlations with developed-markets asset classes. For now, we are focusing on emerging-markets sovereign bonds.
Forecasts: Interest rates and bond yields (%)
Emerging markets did not fare well earlier when financial
7 Sep. 2016
conditions were tightened in 2013 and 2015. We believe
Dec. 2016
Dec. 2017
that they are more resilient now, but we continue to carefully
US
monitor the risk of US interest rate hikes on the entire bond
US Fed
0.38
0.80
1.30
portfolio. Our view is that the Federal Reserve will strike the
3-month
0.83
0.80
1.40
right balance between rate hikes and growth.
2-year
0.73
1.00
1.50
10-year
1.55
1.40
1.80
A selective, diversified strategy is required for today’s unusual bond market and the prevalence of negative yields. We
Germany
suggest a delicate blend of protection, in the form of selec-
ECB Refi
0.00
0.00
0.00
tive government bond strategies, and income potential, using
3-month
-0.30
-0.40
-0.40
specific credits and emerging-markets sovereign bonds.
2-year
-0.68
-0.80
-0.80
10-year
0.11
-0.20
-0.10
Mary Pierterse-Bloem Global Head Fixed Income Strategy & Portfolio Management
Source: ABN AMRO Group Economics
13
Commodities: towards a new equilibrium After a steep recovery, commodity markets stabilised in the third quarter. While supply factors have dominated commodity markets, demand forces are becoming increasingly important. Oil prices have been mainly driven by speculative trading so far in 2016. An increasing number of short positions pushed prices lower, while verbal intervention from key players, such as the suggestion that some producers are freezing or cutting production, triggered an unwinding of short positions (see Graphic). Such conflicting market forces finally led to higher oil prices in August. Support for gold prices has run out of steam, due to the possibility that the US Federal Reserve will hike rates sooner than expected. Base metal prices have also been mixed, with zinc showing a strong performance, while copper is trading within narrow ranges. The broad CRB Index of commodities has taken a breather after a steep recovery and is now range trading.
Demand emerging as a key driver Slowly but surely, some changes are occurring in the drivers of commodity markets. During previous quarters, commodity prices were mainly driven by supply issues. Either oversupply or fear of supply disruptions provided market direction. But while supply is still the underlying driver, the effect of demand factors is becoming more noticeable. Worries surrounding future Chinese commodity demand, for example, could limit potential price increases. The direction of the US dollar is another factor that could influence commodities. Our base case is for one rate hike in December and two rate hikes in 2017. A stronger US dollar could cap the upward potential of commodity prices. For the coming months, we stand by our recommendation for an overweight position in commodities. In the near term, we expect oil prices will find support, given the lag effect of lower capital investment, which will limit future supply capacity. Moreover, risks, such as those related to Chinese demand and the US dollar, could lead to some pressure in precious and base metal prices. All in all, we believe that the new equilibrium between supply and demand variables could lead to higher commodity prices through 2017. After having been closely linked to equity markets, the correlation between equities and commodities is lessening. This increases the diversification benefits of investing in commodities. Hans van Cleef - Senior Energy Economist
14
Group Economics Investment Outlook September 2016
Forecasts: Commodities 6 September 2016
Spot price
Short positions and oil prices
Avg 2016
Avg 2017
350,000 300,000
Oil Brent USD/bbl
47.8
50
70
WTI USD/bbl
45.2
50
65
120
Brent oil price (in USD/bbl) (rhs)
110 100
250,000
90 80
200,000
70
Metals Gold USD/oz
1328
1272
1366
Silver USD/oz
19.6
17.5
20.8
Platinum USD/oz
1065
1041
1181
Palladium USD/oz
677
605
666
Aluminium USD/t
1588
1620
1700
Copper USD/t
4617
4880
5800
150,000
60 50
100,000
40
50,000 0 Jan14
30
Speculative short positions (lhs) Nov14
Sep15
20 Jul16
Short positions as measured by the number of outstanding contracts. Source: ABN AMRO Group Economics
Source: Thomson Reuters Datastream/CFTC NYMEX
15
Currency markets stabilise The US dollar is stabilising, which suggests stabilisation in financial markets at large. Since the start of 2015, the exchange rate of the euro versus the US dollar has moved broadly in a range 1.05 to 1.15. We expect this range trading to continue for the foreseeable future. There are a few reasons, including that the monetary policy tightening by the Fed has been at a snail’s pace, and this is unlikely to change. The US rate hikes have also increasingly been anticipated by financial markets. Meanwhile, other central banks, including the European Central Bank (ECB), the Swiss National Bank and the Bank of Japan, have kept a bias toward monetary policy easing. They have, however, been reluctant to cut rates further into negative territory, which has supported exchange rates. The ECB’s and the Bank of Japan’s monetary policies are also no longer geared towards currency weakness. If there is a significant uptrend in the euro, however, the ECB may cut the deposit rate again. In contrast, the Swiss National
US Dollar Index has lacked direction since 2015 110 105 100 95 90 85 80 75 70 2010
2012
2014
2016
The US Dollar Index is a trade-weighted measure of the value of the US dollar relative to a basket of foreign currencies. Source: Bank of England
Bank continues to intervene in currency markets to limit the rise of the Swiss franc or, even, to weaken it.
the US has even experienced equity outflows. The net equity outflows were a major headwind for the dollar. These
Diverging US flow data behind the dollar’s stability
diverging trends have prevented the US Dollar Index from rallying. Our base-case scenario is that US economic growth will
The US Dollar Index has lacked direction since early 2015
remain moderate, improving only slightly in 2017, while US
(see Graphic), due to the stabilising forces of monetary
inflation is expected to see above-trend growth. The growth/
policy. But other factors are also at play. Financial asset
inflation mix is not supportive for the dollar. Meanwhile, real
flows, for example, have diverged. Foreigners have bought
interest rates are forecast to remain negative. If this trend
US bonds, such as corporate and agency bonds, because
were to continue, it is unlikely that cyclical drivers could
their yields are higher than what is seen in most other devel-
cause the US dollar to rally. Looking ahead, it is not clear
oped markets. These purchases have supported the US
what effect the US election will have on the dollar.
dollar, and we expect these purchases to continue. Georgette Boele - Coordinator FX & Net equity flows by foreigners into the US, however, have not supported the US dollar. Since the first quarter of 2013, net equity inflows have declined; and since the end of 2013
16
Precious Metals Strategy
Group Economics Investment Outlook September 2016
Forecasts: developed-markets currencies FX pair
5 Sept. 2016
Q4 2016
Q4 2017
Forecasts: emerging-markets currencies FX pair
5 Sept. 2016
Q4 2016
Q4 2017
EUR/USD
1.1174
1.10
1.10
USD/CNH (offshore)
6.69
6.83
7.00
USD/JPY
103.40
103
110
USD/INR
66.80
69.00
69.00
EUR/JPY
115.54
113
121
USD/SGD
1.36
1.40
1.38
GBP/USD
1.3346
1.33
1.40
USD/TWD
32.40
33.00
32.50
EUR/GBP
0.8436
0.83
0.79
USD/IDR
13,146.00
13,400
13,000
EUR/CHF
1.0918
1.10
1.14
USD/RUB
65
64
58
AUD/USD
0.7596
0.74
0.75
USD/TRY
2.9500
3.00
2.90
NZD/USD
0.7300
0.70
0.75
USD/ZAR
14.3700
15.00
14.50
USD/CAD
1.2943
1.27
1.20
EUR/PLN
4.3600
4.45
4.30
EUR/SEK
9.5665
9.50
9.00
EUR/CZK
27.0200
27.15
26.50
EUR/NOK
9.2493
9.25
8.50
EUR/HUF
309.57
320
300
USD/BRL
3.26
3.35
3.20
USD/MXN
18.49
18.50
17.50
Source: ABN AMRO Group Economics
17
Real estate: responding to the search for yield We became more positive regarding real estate over the course of 2016, moving the allocation from underweight at the start of the year to an overweight by early summer.
Regional differences in outlook We take a worldwide approach to the asset class, which supports the goal of international diversification. US real estate investment trusts reported solid second-quarter
Despite the increasing likelihood of a rate hike by the US
results, although management comments were, in general,
Federal Reserve, we believe that the investment case for
more cautious than expected.
real estate remains intact. Aggressive rate hiking in the US is not expected, and other central banks are likely to retain or,
In Europe, the Brexit vote dented sentiment for real estate
even, expand their already loose monetary policies.
before the referendum, and the long-term consequences are
Valuations are supported by fundamentals
not yet clear. The Bank of England, however, has
introduced supportive measures. Real estate in Europe is benefiting from low financing costs, as a result of the loose monetary policies of the ECB. Second-quarter results for
Fundamentals for real estate are strong, supported by
European real estate companies were mainly positive with
steady cash flows from rental income. The asset class has
healthy revaluation gains.
an appealing dividend yield of 3.8%, versus 3% for equities, which is attracting investment flows. Price momentum is
The market in Asia is mixed, but the outlook for real estate
also strong, and real estate typically performs well late in
is supported by the prospect of higher economic growth in
the economic cycle. Long-term drivers remain supportive,
comparison to developed markets and the positive effects
including the global trend of urbanisation, as the populations
of an increasingly wealthy middle class.
of cities swell. Valuations are reasonable, supported by low but improving
Positive performance backdrop
economic growth, limited supply in several markets and the continued low yield environment, all of which justify higher
Year-to-date, as of 30 August, listed real estate (FTSE EPRA
valuations.
NAREIT Developed Index) returned 12% (excluding dividends), outperforming both bonds and equities. Ralph Wessels - Equity Research & Advisory Expert
18
Investment Strategy & Portfolio Expertise Investment Outlook September 2016
19
Performance Performance (%) of the tactical asset allocation versus the strategic asset allocation EUR 22 May 2003 to 31 Aug. 2016 * Strategic
*
Tactical
USD 2016 YTD (31 Aug. 2016)
Excess Return
Strategic
Tactical
22 May 2003 to 31 Aug. 2016 *
Excess Return
Strategic
Tactical
2016 YTD (31 Aug. 2016)
Excess Return
Strategic
Tactical
Excess Return
Profile 1
75.19
77.06
1.06
2.62
1.34
-1.24
62.12
67.81
3.51
2.89
1.73
-1.13
Profile 2
84.43
93.89
5.13
2.55
1.47
-1.05
72.83
81.83
5.21
3.65
2.72
-0.89
Profile 3
107.82
133.90
12.55
2.32
1.50
-0.80
100.56
120.13
9.76
4.09
3.32
-0.74
Profile 4
120.66
148.74
12.73
1.98
1.44
-0.53
115.85
137.42
9.99
4.63
3.99
-0.61
Profile 5
140.72
180.43
16.50
1.60
1.50
-0.11
137.02
169.40
13.66
5.12
4.61
-0.49
Profile 6
151.18
190.51
15.66
1.30
1.45
0.15
149.29
181.83
13.05
5.45
5.01
-0.42
Profiles 1 and 2 are linked to the “old” Conservative profile, profiles 3 and 4 to the “old” Balanced profile and profiles 5 and 6 to the “old” Growth profile.
20
Asset allocation profiles ABN AMRO’s Global Investment Committee model portfolio risk profiles in percent, starting with the most conservative (Profile 1) and ending with that most exposed to market risks (Profile 6). Asset allocation
Profile 1
Asset class
Strategic
Tactical Deviation
Neutral
Min.
Max.
5
0
60
90
40
Equities
0
Alternative investments
5
Money markets Bonds
Profile 2 Strategic
Tactical Deviation
Neutral
Min.
Max.
42
37
5
0
70
29
24
100
53
-37
70
30
85
41
-29
0
10
0
0
15
0
30
15
0
0
10
5
0
10
0
20
15
5
Funds of hedge funds
5
5
0
5
5
0
Real estate
0
0
0
3
6
3
Commodities
0
0
0
2
4
2
Total Exposure
100
100
Asset allocation
Profile 3
Asset class
Strategic
Profile 4
Tactical Deviation
Neutral
Min.
Max.
5
0
70
23
Bonds
55
20
70
Equities
30
10
Alternative investments
10
0
Money markets
100
100
Strategic
Tactical Deviation
Neutral
Min.
Max.
18
5
0
70
15
10
32
-23
35
10
55
20
-15
50
30
0
50
20
70
50
0
20
15
5
10
0
30
15
5
Funds of hedge funds
5
5
0
5
5
0
Real estate
3
6
3
3
6
3
Commodities
2
4
2
2
4
2
Total Exposure
100
100
Asset allocation
Profile 5
Asset class
Strategic
Profile 6
Tactical Deviation
Neutral
Min.
Max.
5
0
70
2
Bonds
15
0
40
Equities
70
30
Alternative investments
10
0
Money markets
100
100
Strategic
Tactical Deviation
Neutral
Min.
Max.
-3
5
0
60
3
-2
13
-2
0
0
25
0
0
90
70
0
85
40
100
85
0
30
15
0
30
12
5
10
2
Funds of hedge funds
5
5
0
5
5
0
Real estate
3
6
3
3
3
0
Commodities
2
4
2
2
4
2
Total Exposure
100
100
100
100
The tactical asset allocation reflects active strategies that account for medium- and short-term views and represent a deviation from the longer term strategic asset allocation.
21
Contributors
Investment Outlook September 2016
Members of the ABN AMRO Bank Global Investment Committee Didier Duret
didier.duret@nl.abnamro.com
Chief Investment Officer Private Banking
Gerben Jorritsma
gerben.jorritsma@nl.abnamro.com
Global Head Investment Strategy & Portfolio Expertise
Han de Jong
han.de.jong@nl.abnamro.com
Chief Economist
Olivier Raingeard
olivier.raingeard@fr.abnamro.com
Head Investments Private Clients Neuflize OBC
Bernhard Ebert
bernhard.ebert@de.abnamro.com
Head Discretionary Portfolio Management Bethmann Bank
Rico Fasel
rico.fasel@nl.abnamro.com
Director Product Management Investment Advisory Netherlands
Georgette Boele
georgette.boele@nl.abnamro.com
Coordinator FX & Precious Metals Strategy
Hans van Cleef
hans.van.cleef@nl.abnamro.com
Senior Energy Economist
Roy Teo
roy.teo@sg.abnamro.com
Senior FX Strategist
Group Economics
Investment Strategy & Portfolio Expertise Mary Pieterse-Bloem
mary.pieterse-bloem@nl.abnamro.com
Global Head Fixed Income Strategy & Portfolio Management
Roel Barnhoorn
roel.barnhoorn@nl.abnamro.com
Senior Fixed Income Thematic Expert
Willem Bouwman
willem.bouwman@nl.abnamro.com
Fixed Income Portfolio Manager
Chris Huys
chris.huys@nl.abnamro.com
Senior Fixed Income Portfolio Manager
Shanawaz Bhimji
shanawaz.bhimji@nl.abnamro.com
Fixed Income Portfolio Manager
Jasvant Jadoenathmisier
jasvant.jadoenathmisier@nl.abnamro.com
Assistant Fixed Income Portfolio Manager
Carman Wong
carman.wong@hk.abnamro.com
Global Emerging Market Fixed Income Head
Grace M K Lim
grace.m.k.lim@sg.abnamro.com
Senior Fixed Income Analyst
Barbara Cheung
barbara.cheung@hk.abnamro.com
Fixed Income Analyst
Annemijn Fokkelman
annemijn.fokkelman@nl.abnamro.com
Global Head Equity Strategy & Portfolio Management
Maurits Heldring
maurits.heldring@nl.abnamro.com
Senior Equity Research & Advisory Expert
Jaap Rijnders
jaap.rijnders@nl.abnamro.com
Senior Equity Research & Advisory Expert
Ralph Wessels
ralph.wessels@nl.abnamro.com
Equity Research & Advisory Expert
Piet Schimmel
piet.schimmel@nl.abnamro.com
Senior Equity Thematic Expert
Paul van Doorn
paul.van.doorn@nl.abnamro.com
Senior Portfolio Manager Equities
Chris Verzijl
chris.verzijl@@nl.abnamro.com
Portfolio Manager Equities
Martien Schrama
martien.schrama@nl.abnamro.com
Profile Manager
Chew Hwee
chew.hwee.lim@sg.abnamro.com
Head Asia Equity Strategy
Javy Wong
javy.wong@hk.abnamro.com
North Asia Equity Strategist
Quantitative Analysis and Risk Management Hans Peters
hans.peters@nl.abnamro.com
Head Investment Risk
Paul Groenewoud
paul.groenewoud@nl.abnamro.com
Quant Risk Specialist
Linus Nilsson
linus.nilsson@nl.abnamro.com
Quant Risk Specialist
22
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Investment Outlook September 2016
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23
Europe
Middle East
ABN AMRO MEESPIERSON
ABN AMRO PRIVATE BANKING
AMSTERDAM
DUBAI (DIFC)
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BANQUE NEUFLIZE OBC S.A. PARIS
Asia
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FRANKFURT
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jean.marie.schmit@lu.abnamro.com ABN AMRO PRIVATE BANKING ANTWERPEN - BERCHEM Erik Joly erik.joly@be.abnamro.com ABN AMRO PRIVATE BANKING CHANNEL ISLANDS Andrew Pollock andrew.pollock@gg.abnamro.com
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