ABN AMRO MeesPierson is selling one-quarter of its government bonds, reducing its holding in bonds in favour of liquid assets. As a result, the share of corporate bonds in the portfolio will increase from 33% to 44%; these corporate bonds are from creditworthy and high-yield companies.
Ben Steinebach, Head of Investment Strategy at ABN AMRO MeesPierson: ‘Prices on the European bond markets have barely budged higher since mid-March, and have even inched down in countries like Italy, Spain and Portugal. Yet government bonds are still very expensive at the moment. There isn’t much potential for a price rise, as long as the European Central Bank is unwilling to buy bonds with a redemption yield lower than -0.2%. That’s the current level of the deposit rate. This is why we have reduced our holding in bonds in favour of liquid assets, by selling government bonds.’
ABN AMRO MeesPierson is still optimistic about corporate bonds and believes they can generate additional income for the bank. ABN AMRO MeesPierson also thinks it is responsible to take the extra risk attached to a corporate bond, as the favourable economic environment means there is a slimmer chance businesses will go bankrupt.
Bullish on equities
ABN AMRO MeesPierson is still optimistic about equities. The bank expect the US economy to resume growth in the second quarter, after posting weak growth figures in the first quarter. The disappointing start was due in part to severe weather conditions on the East Coast and strikes on the West Coast. As these temporary factors are no longer at play, ABN AMRO MeesPierson expects the US economy to pick up further. Europe’s economy continues to exceed expectations thanks in part to the policy of the ECB, which is trying to stimulate this economy by buying European government bonds.
Europe and emerging markets
In terms of its regional allocation, ABN AMRO MeesPierson prefers equities in Europe and emerging markets to US equities. Steinebach: ‘The ECB’s policy is further weakening the euro and keeping interest rates down, thus improving economic growth and business sales. It’s crucial that this is reflected in corporate earnings, justifying higher share prices.’