The investment strategy of ABN AMRO Private Banking is aimed at providing stable future returns. The asset allocation, as determined by the Global Investment Committee, remains tilted in favour of equities with a cautious stance toward bonds. Alternative investments, consisting of hedge funds and commodities, add diversification and return potential in volatile markets.
At its meeting on 12 November, the Global Investment Committee reduced risk by moving the strong overweight in equities to a less pronounced overweight. In the balanced profile-3 portfolio, this amounted to a reduction in equities of 5%. The proceeds were invested in bonds, an asset class which remains strongly underweight.
The Global Investment Committee confirmed its conviction in the existing asset allocation at its meeting on 15 October. The allocation consists of an overweight in equities, a strong underweight in bonds and overweights in commodities and hedge funds. The GIC also decided to lift the short euro versus long US-dollar hedge for US-dollar portfolios, given a muted outlook for the US dollar. The committee’s discussion centred on the main macroeconomic scenario, calling for a continued global recovery, while also considering the potential for an adverse alternative scenario, involving a recession.
The Global Investment Committee, at its meeting on 10 September, confirmed its conviction in the existing asset allocation. It consists of an overweight in equities, a strong underweight in bonds and overweights in commodities and hedge funds. A main discussion point was the growing divergence between developed and emerging economies, which has been thrust centre stage by events in China. The committee believes, however, that while other emerging-markets countries may be negatively affected, China’s slowdown will not affect global growth prospects.
Global economic growth is still set to accelerate. Favourable growth conditions, including lower oil prices and low financing costs, are still in place. We have high hopes for Europe in particular, as the region benefits from a decline in the euro and the ECB’s massive asset purchasing programme. The US economy experienced some temporary weakness in recent months. We expect, however, a significant growth pickup in the US during the course of the year.
Central banks in the US and Europe are moving in opposite directions. In Europe, the ECB has embarked on an unprecedented EUR 1.1 trillion asset-purchase programme, while the US Federal Reserve is expected to start hiking rates in 2015.
We expect the European economy to continue to gain momentum, as a weaker euro, low oil prices and the substantial support of the European Central Bank promote growth. Households around the world are benefitting from lower energy prices and consumers are taking advantage of more cash in their pockets to start spending. In this environment, we expect the consumer discretionary sector to outperform the broader market.
Lower oil prices are acting as a significant global tax break for consumers and companies. The result is accelerating economic growth, which we expect will translate into demand for commodities. Commodities are also supported by the lower oil price, which is hurting production and denting supply.
A number of global tailwinds related to muted borrowing costs, low oil prices and a rising US dollar will push the economy along in 2015. It will take some time, however, before the positive impact materialises. In the meantime, volatility in European markets is rising and is now well above its long-term average. Ongoing worries about deflation and slower growth are behind the market nervousness. In the US, volatility is more in line with its historical average, as the US economy strengthens. The appreciation of the US dollar is expected to diffuse the positive momentum of the US throughout the global economy.
