ABN AMRO Private Banking maintains its overweight position in equities and remains underweight in bonds, according to its Mid-Year Investment Outlook – Mindful moves – published today. For diversification purposes, it recommends a combination of inflation-linked bonds, commodities, small caps and hedge-fund strategies, which, alongside a well-balanced portfolio of US, European and Asian equities, can mitigate the risk of corrections.
ABN AMRO expects the world economy to grow by 3.3% in 2015, supported by a re-acceleration of the US economy in the second part of the year. The bank expects annual growth in the eurozone economy to reach 1.8%. Emerging Asia is forecasted to grow by 6.3%.
Didier Duret, Chief Investment Officer of ABN AMRO Private Banking, said: “The equity bull run is now in a mature phase, supported by well-established earnings momentum. Active allocation and diversification are required to deflect bond and currency volatility that has come with unprecedented monetary stimulation.”
Allocations in the private bank’s balanced model portfolio reflect the changes made before the May correction. Cash was increased to 17% (from 8%), financed by a significant reduction of the bond allocation to a minimum of 25% (from 34%) and by some profit taking in equities. Equities retain a 43% weighting. Within alternative investments (15%), hedge funds are overweight at 8% with a focus on long/short equity and CTA. Commodities are overweight at 4% and listed property represents 3%. ABN AMRO Private Banking advises its clients to sell illiquid individual bonds and to reinvest in active fixed income mutual funds.
Bond portfolio management will remain challenging. A further bond correction, however, will be mitigated by the implementation of quantitative easing by the ECB. Inflation-linked bonds are set to profit from the central banks’ goal to lift inflation, and commodities can hedge bond and currency volatility. The US dollar is expected to continue its rally and rise by another 10-15% in 2015, supported by the divergence in monetary policies in the eurozone and the US.