ABN AMRO Private Banking remains significantly Overweight equities and advises diversification into corporate bonds and hedge funds in its Annual Investment Outlook 2016 – Navigating Expectations – published today.
The private bank maintains its Overweight position for European, China and India equities, but recognizes the seven-year old bull market in equity is maturing. This argues for diversification into commodities (overweight) and hedge funds (overweight), as they are less vulnerable to market volatility. Bond markets (strong underweight) can best be avoided, except for the segments offering returns over cash with reasonable risk.
For 2016, ABN AMRO Private Banking favours the health care and IT sectors. Companies benefiting from new trends in travelling is the theme for the year, being less dependent on the economic cycle. Expedia, Accor, LVMH Moet, Carnival and Marriott are recommended investments.
Didier Duret, Chief Investment Officer of ABN AMRO Private Banking, said: ‘A world economy that is back to more convincing growth of around 3% in 2016 and central bankers acting to protect growth are sufficient to insure that equity markets outperform other asset classes. Varying expectations regarding rate hikes in the US and a turnaround in commodities will create opportunities to enter bonds and emerging markets’.
Allocations in the private bank’s balanced model portfolio are therefore dominated by an overweight in equities (38%) and a strong underweight in bonds (30%). The allocation to equities was recently reduced by 5% and added to Investment-grade and high-yield bonds, which are more attractive than peripheral Eurozone bonds. A significant Overweight in hedge funds (11%), commodities (7%) and a cash buffer (14%) add to the strategy to diversify and diffuse risk.
The bank remains positive on the US dollar, expecting the dollar to achieve parity with the euro. The Chinese yuan is expected to depreciate at a modest pace. Commodity prices are expected to reverse with an average price of USD 60 per oil barrel for 2016.