ABN AMRO Private Banking remains Overweight equities, but advises careful stock selection and risk mitigation via hedge funds in its Q2 2014 Investment Outlook – Time for Selection – published today.
The private bank maintains its Overweight position for European equities and Underweight for the US from the previous quarter, seeing valuations in both regions supported by a continued economic recovery in developed countries and global growth of 3.7%. US economic data is predicted to bounce back after recent weakness, with rates forecast to rise to 1.5% by the end of 2015.
Investor fears over emerging markets are considered overdone, although divergence is noted between commodity dependant countries and those focused on industrial exports. Higher emerging markets growth of 4.8% is forecast this year (up from 4.3% in 2013). Emerging Asia industrial nations including Indonesia and India are upgraded to Neutral, Taiwan to Overweight.
Materials and Healthcare sectors are both upgraded to Overweight, with the chemicals and industrial gases subsectors of the former expected to benefit from lower input prices and reduced energy costs.The defensive Telecoms and Consumer Staples sectors are moved to Underweight.
Didier Duret, Chief Investment Officer of ABN AMRO Private Banking, said: "Now is the time to zero in on companies with the capacity to deliver earnings and to select bonds that can cushion interest rate risk. We also recommend hedge funds with strategies that can benefit from volatility and divergence among markets, countries and companies."
Allocations in the private bank’s balanced model portfolio are altered slightly from last quarter for risk management, with equities trimmed to 40% (from 44%) and cash increased to 13% (from 9%). Bonds, hedge funds, property and commodities retain weightings of 37%, 5%, 3% and 2% respectively.
Companies benefiting from accelerating lifestyle changes of emerging markets middle classes is an equity theme of the quarter, alongside manufacturers able to achieve efficiencies via automation of production. Recommended names include ABB, ASML, Baidu, Dassault Systemes, HSBC, Kuka, P&G, Ping An Insurance, Qualcomm, Schneider Electric, Swatch and Volkswagen.
Fixed income remains Underweight, with government bonds for France, Belgium, Spain, Ireland and Italy recommended, as well as high yield, European periphery and Asia corporate bonds. Hedge funds remain Overweight, with long/short equity and event driven strategies preferred. The bank stays
Neutral for commodities, but recommends exposure to diverging trends via selected funds. The US dollar, British pound, Mexican peso and Polish zloty are favoured currencies.