ABN AMRO Private Banking has further increased its Overweight position in equities and significantly cut its cash holding, according to its Q3 2014 Investment Outlook – A New Impulse – published today. It is also recommending selected emerging markets and listed property to investment clients.
The private bank has moved emerging markets equities to Overweight from Neutral, raising its emerging markets growth forecast to 4.5%. It particularly favours direct investment in companies in China, Thailand and Taiwan, as well as US and European companies exposed to emerging markets consumers. It remains Overweight for European equities and Underweight for the US.
It views listed real estate as a bond proxy and has a preference for US REITs as well as European companies, seeing attractive yields and declining risk supported by solid demand from institutional investors.
Food production companies are the equity theme of the quarter. It recommends investors shift their focus from companies benefiting from commodity scarcity, including fertilizer producers and farmland owners, to businesses that will achieve rising sales and margin increases from structurally rising demand. Recommended names in the food value chain include Agrium, Nutreco, Deere & Co, Kuka, Archer-Daniels, CSX, Nestlé and Starbucks.
Didier Duret, Chief Investment Officer of ABN AMRO Private Banking, said:
“We continue to invest in ‘risky’ assets where valuations are relatively attractive. Although our policy is geared towards continued positive developments, we also recommend diversification to our main scenario in order to increase portfolio stability. We believe this can be achieved via exposure to the food sector, hedge funds and volatility instruments.”Allocations in the private bank’s balanced model portfolio reflect these changes from the last quarter, with equities increased to 43% (from 40%), cash cut to 5% (from 13%) and property increased to 8% (from 3%). Bonds, hedge funds and commodities retain weightings of 37%, 5% and 2% respectively.
The private bank remains Underweight for fixed income as a whole but Overweight for credit, with a preference for high yield, European periphery and Asia corporate bonds. Hedge funds are kept Neutral, with equity market neutral strategies and event driven strategies preferred. The bank stays Neutral for commodities, but recommends exposure to diverging trends via selected funds.
In currencies the US dollar is favoured along with the Swedish krona, while the euro and safe haven currencies including the Japanese yen and Swiss franc retain a negative view.